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Canada Pension Plan Investment Board is charting a new investment strategy aimed at making the fund more competitive as it prepares to manage more of Canadians’ money than ever before.

CPPIB is preparing for an influx in new capital linked to the Canada Pension Plan expansion. As it prepares to manage more money on behalf of 20 million Canadian workers and beneficiaries, the fund is also looking for ways to better compete with other global institutions chasing the same public- and private-market investments.

On Thursday, CPPIB posted net investment gains of 11.6 per cent in its 2018 fiscal year, which ended March 31. Assets hit a record of $356.1-billion, up from $316.7-billion at the same time a year earlier.

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Mark Machin, chief executive officer of CPPIB, attributed the gains to buoyant public-equity markets through much of the year, with private holdings adding value when volatility reared up in its final quarter. But Mr. Machin warned that double-digit returns shouldn’t be expected every year.

“I think the return environment is going to be lower over then next five years than it has been for the last five years. We’ve had extraordinarily robust conditions and rising valuations around the world, but I don’t think that’s going to continue,” he said in an interview.

The higher asset valuations pose a challenge, and the amount of money held by an increasing number of global funds edged up last year. Mr. Machin said CPPIB has to be careful not to pursue prospective private-market acquisitions too aggressively.

“We’re turning down lots of private equity opportunities right now, because there’s such a wall of money chasing them. Same in infrastructure,” he said. On top of this, public market volatility and low yields on income-oriented investments have posed investment challenges.

“This not only makes it hard to pick our spots; it elevates the risk of a correlated decline in prices in both public and private markets. In fact, it is generally expected that as the economic cycle in the U.S. in particular – and to some extent in the rest of the world – becomes more mature, then most financial assets are likely to generally underperform,” Mr. Machin wrote in CPPIB’s annual report.

Amid these challenges, CPPIB’s board of directors endorsed its newly developed 2025 strategic direction, which updates the fund’s last plan for 2020 that it has largely already completed. The new plan has three key components: increased focus on emerging markets, investments in new technology and improving the fund’s ability to act quickly.

On the first goal, the fund now plans to invest up to a third of its assets in emerging markets by 2025, largely focused on China, Brazil and India. Right now, the fund has $56.1-billion, or 15.8 per cent of its total assets, allocated to emerging markets.

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The technology piece includes investing in new data and programs that could reshape investment decisions. The fund is looking for a new chief technology and data officer as private market investors across Canada continue to rethink how they collect, analyze and use information throughout their investment processes.

The third component, called “agility,” is about allocating capital more effectively across that fund’s 26 investment groups. This is linked to the management changes that the pension fund has made over the past year as it reassessed executive responsibilities.

CPPIB must manage this while preparing to take on new CPP contributions starting on Jan. 1, 2019, which will support a steady increase in the benefit amount working Canadians will get in their retirement years. These additional top-up contributions, expected to reach $1-billion in the first year, will be invested using a different, more conservative risk profile than the existing CPP account.

About 55 per cent of the new money will be managed by the same professionals that run the existing portfolio at CPPIB. The other 45 per cent will be invested directly in low-risk bonds.

“We’re trying to do it in a way where we can use all the benefit of the existing investment teams, and use their power to drive both the base CPP and the additional CPP,” Mr. Machin said. He added that there will be few additional costs or new hires to support the new flow of funds.

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Still, the top challenge on Mr. Machin’s mind is “making sure we are not overpaying for things. Just being cool-headed about our investments around the world.” The fund performed 275 global transactions in fiscal 2018, up from 182 in 2017.

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