The Canada Pension Plan Investment Board is targeting stronger ties to China through a new agreement with a large state group.
The manager of the country's largest pension fund signed a memorandum of understanding with China's National Development and Reform Commission (NDRC), the country's economic planning department, in Ottawa on Thursday. Under the agreement, the CPPIB will offer guidance on pension reform and other governance matters to a country facing an aging population and a long recovery from the one-child policy. The board will also seek opportunities to broaden its investments in an increasingly desirable market.
It's a high-profile deal among the bilateral agreements being struck in Canada this week as Prime Minister Justin Trudeau meets with Chinese Premier Li Keqiang. Both men will witness the memorandum document. Mr. Trudeau recently travelled to China to smooth relations with Canada's second-largest trading partner and is seeking to rebuild the two countries' relationship.
The CPPIB has positioned itself as a resource for the NDRC at a time when Canada is managing its own pension reform and retirement-income deficit concerns. As corporate pension plans become less generous, Canadians' retirement funding gap has grown. As a result, many federal, provincial and territorial finance ministers this summer approved a plan to expand the Canada Pension Plan, scheduled to begin in 2019.
For the CPPIB, China represents a growth market that aligns with its investment strategy. One of the board's investing themes is shifting demographics – in particular, the aging population in China. The CPPIB has been investing in companies that address this shift, including long-term-care services for seniors and, most recently, a travel business.
As an institution that seeks to invest and earn returns over many years, the CPPIB would benefit from an improved understanding of and influence over the development of regulatory and policy frameworks in China. Closer relations with Chinese state-owned companies and government groups could be an advantage as the country pledges to lower foreign-investment barriers.
"We're well aware of our need to build our brand and to build relationships," said Michel Leduc, global head of public affairs and communications at the CPPIB.
Mr. Leduc said the board has been making an effort to develop good relationships with decision-makers in the region. "The benefits of the co-operation that we're undertaking in the MOU [memorandum of understanding] will, we believe, open the possibility for future investment opportunities," he said.
In exchange, the CPPIB said, it will offer training, workshops and research to help the NDRC navigate its aging population, creating an information network with other local experts.
"China has, for a number of years, expressed significant interest in learning best practices and developing policy frameworks in key areas that pose significant, socio-economic challenges for the country," Mr. Leduc said. Among these are demographic challenges as the number of those aged 65 and older rapidly expands, compounded by a smaller cohort of young people after years of the one-child policy.
The CPPIB was approached by the NDRC to help find solutions to these and other pension issues, including investment management strategies and governance frameworks in the context of being a large public pension plan.
Canada is increasingly seen as a leader in the pension space as so many of the country's larger funds pursue international deals for real estate, infrastructure, private equity and other large transactions that make them among the formidable private market investors on the world's stage.
Mark Machin, chief executive officer of the CPPIB, who was in Ottawa to sign the agreement, has robust experience in China, having been based in the Asian region for more than 20 years. He joined the board in 2012 as its first president of operations in Asia. The CPPIB has an office in Hong Kong.
Other large Chinese industry groups have also sought Canadian expertise and guidance on financial matters.
At the request of Chinese regulators, Manulife Financial Corp. has held several meetings and provided research papers on North American and Hong Kong pension systems in the past five years. And Donald Guloien, Manulife's CEO, belongs to the Mayor of Shanghai's International Business Leaders' Advisory Council.
Industrial and Commercial Bank of China – one of the world's largest banks – formed a partnership with the University of Toronto's School of Continuing Studies in 2011, sending employees to attend the school's International Leadership Development Program.
Last year, the bank's Canadian arm became the backer for the country's first trading and clearing network for the yuan in Toronto, saying that it hoped to "encourage trades between Canada and China" and "deepen economic co-operation."