First and foremost, I’ll just say that this has been a good political discussion on this board and we rarely see seem to see these anymore! A lot of them tend to descend into vitriol pretty quickly these days.
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Originally Posted by Goriders
I think it’s been discussed for a few decades. There were a couple of reports generated 20 years ago that recommended it. The government at the times wasn’t interested though. That doesn’t mean things can’t change though.
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I think that this “report” refers to the infamous firewall letter written by Stephen Harper and others. That’s not actually a report though and the intentions of that document were not exactly trying to make Canada a better place.
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Originally Posted by Goriders
You might be right at the start. But if the pension outperformed the CPP I doubt that would be true in the long run.
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You’ve brought up rate of return several times, and I just can’t help but comment. The thing is, rate of return and what constitutes a good return is up for debate. In the context of a pension fund, they have a discount rate and need to get that. That discount rate is different for each fund and calculated based on specifics for that pension. This was one of my annoyances when people would look at Aimco and say “they’re brutal because CPPIB has a better return”. In fact, their return was also good; it’s just that they have a different mandate. I know full well, that some people are reading this paragraph and thinking I’m insane. So, let me just make this next point.
Professional money management isn’t about getting the absolute highest rate of return. I know that’s what people think, and no disrespect to you if you think that, but that’s the amateur viewpoint. The real underlying goal is to be compensated for the amount of risk you’re taking. Risk underlies all of the investment decisions and you have to determine the amount of risk you’re willing to take first, and allocate from there. This couldn’t be more applicable than for pensions. They have to provide a stream of income to the pensioners and that’s their entire function.
Could you personally get a better rate of return than CPPIB? Sure. I do. But could you invest the entire CPP that way, get a better return and improve things? It’s highly questionable, because the risks would be higher and as a result the volatility and uncertainty is also higher. The bottom line is that no professional asset manager is going to take huge risks to try to maximize the return in a pension fund, and it’s just not how money is managed overall.