The head of the Canada Pension Plan Investment Board is expressing concerns about a growing wave of protectionism that is threatening investment returns.
The debate over open borders has gained traction amid U.S. President Donald Trump's plans to reform the North American free-trade agreement. Unrest in Europe caused by the Brexit vote, and the potential for populist candidates to make progress in French and German elections, have also contributed to a climate of uncertainty.
Global institutional investors are grappling with the impact such decisions could have on their portfolios, especially if policy changes weigh heavily on economic growth around the world or have an affect on deal making.
"We've been worried about it," Mark Machin, chief executive officer of CPPIB, told tables of banking, accounting and other financial folk at a Toronto Region Board of Trade event on Friday. "Our investment strategy benefits from open markets: Open markets for investment, open markets for trade, open markets for people. And so impediments to that are not helpful."
He added that such conditions could have a negative effect not only on global growth, but also on returns CPPIB's businesses and other assets might generate.
Mr. Machin has a better lens for the global influence of these political changes than many, having worked in Asia for 20 years at Goldman Sachs and headed up CPPIB's international-investment activities and its advisory relationships before becoming CEO. CPPIB has been a "huge beneficiary" of the globalization trend, Mr. Machin said, and the fund is continuing to shrink its investment footprint in the Canadian market. Only about 15 per cent of the portfolio is now based in the country.
In one of his first public speeches since taking over as head of CPPIB last June, Mr. Machin largely focused on acquainting the audience further with the pension fund's evolving approach to investments, strategy and risk. But Mr. Machin also said the global tumult gives Canada an opportunity to show its stripes and gain valuable ground with potential international partners.
"I think the federal government, provincial governments, municipal governments have all recognized that this is sort of a time for Canada to stand up for its values in terms of immigration, also its values in terms of free trade and investment," he said. That would include seizing "opportunities in creating bilateral agreements across the world."
Mr. Machin has been in the inner circle of the country's largest financial firms and institutions, with access to the Prime Minister and Minister of Finance as Ottawa seeks more private money to build public works.
The Federal Government has also been working the other way. The recent budget announcement proposed to invest $256-million over five years for Canada to join the Asian Infrastructure Investment Bank. This Beijing-based organization was formed in 2015, to finance a wide range of infrastructure needs across Asia, from energy and power projects to sanitation upgrades and agriculture development. The arrangement was billed as a way to "support inclusive, sustainable economic growth in Asia and beyond," and the budget document noted that it could bolster trade links and lead to new commercial opportunities for Canadian businesses.
In his prepared remarks, Mr. Machin said some of CPPIB's foreign peers struggle with having to make investments based on political pressures. "They are challenged in that they are not quite as independent, and sometimes pushed to make more political choices irrespective of pure financial math," he said. "We don't view them as necessarily acting in the best interests of their beneficiaries and contributors, and we're glad that we're able to."
Looking ahead to the geopolitical climate, Mr. Machin retains some optimism that "pragmatism will reign in the end. And we won't see [too much of an] impact – whether it's in Europe, whether it's in North America – of these policies."
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