How CPPIB is navigating aging demographics and negative rates
The head of Canada’s largest pension plan says his fund is ready to take advantage of economic instability.
“We like to be able to take advantage of the opportunities that happen when everyone else is stressed,” Canada Pension Plan Investment Board Chief Executive Officer Mark Machin said in an interview with BNN Bloomberg Tuesday.
“That really should be one of the defining features of funds like ours. We have incredibly stable money, incredible long-term money. So, when other funds are suffering redemptions, or banks are under stress, we can buy assets at prices that come up once in a generation.”
The key, Machin says, is to rigorously stress test portfolios and ensure they’re prepared for absolute worst-case scenarios.
“The really key thing is understanding the risks you’re exposing yourself to, making sure you’re not compounding risks you haven’t thought about,” he said.
“The worst that happened before, the second-worst that happened before – what if both happened at the same time? And, really looking at what could happen and making sure we have sufficient liquidity, sufficient ability to rebalance the portfolio.”
Machin’s comments come as many investors are on edge after the key two-year and 10-year U.S. Treasury yield curve briefly inverted last week, spurring fears of an economic downturn and wild market swings.
He says that investors should be prepared for lower returns ahead, as the rally that began after the 2008 global financial crisis comes to an end.
“This is the challenge for the next 10 years or more, in that yield is going to be really low, or negative and, likely, returns on equities are not going to be what they’ve been since the financial crisis until now,” he said. “We’ve had a fantastic 10, 11 years in recovery since the global financial crisis.
“How much more bonds can go into negative territory, nobody really knows. But, there’s certainly going to be very low yield relative to history for the foreseeable future as economies grow, central banks try and cut rates, [and] put more stimulative policy in place.”