PSP Investments manages the pensions of the members of the public sector pension plans of the federal public service, the Canadian Forces, the Royal Canadian Mounted Police, and the Reserve Force. In March 2023, PSP was also appointed as the investment manager of the newly established CA$ 15 billion (US$ 10.8 billion) Canada Growth Fund mandated to help Canada speed up the deployment of clean technologies. PSP has maintained an impressive performance in the past decade, and we were delighted to speak with its CIO, Mr. Eduard Van Gelderen, about the fund’s strategy and objectives.
[GSWF] What makes PSP unique and what role does it play in the Canadian pension system?
[PSP] The Canadian retirement system follows the four layers of the World Bank, so PSP is actually at a different layer than CPP, despite both funds being at federal level. We are very different even with funds than are at the same layer as us, like AIMCo. For PSP, the Canadian government acts as sponsor and gives us a risk budget, but delegates most of the power and management to us. Thus, we have significant capital to manage but have the flexibility of acting quite independently.
[GSWF] In 24 years, PSP has almost tripled its contributions to CAD 265 bn in net assets. What is the secret sauce of your success?
[PSP] We are relatively young and started in 2000 with almost no assets. When PSP was set up, the thinking was that it could not rely only on the pay-as-you-go (defined contribution) in order to cover the pensions of the baby boomers. We have done our job well, and I believe our success lies in our diversification away from public markets. We were early movers into private markets, which helped us with certain assets and opportunities. In addition, and in line with the Canadian model, we have reduced our passive management and became more active over time.
[GSWF] In the past five years, Real Estate has performed poorly (0.9%) – is this why you have reduced the exposure to 10%?
[PSP] The performance of Real Estate in FY24 was poor and that has pulled down the average. We look at the added value of each asset class, and even though we will keep having a significant weight in real estate, we are assessing the different sub-segments, including commercial RE, which is under stress. However, industrial RE is still doing good, and, over five years, we have outperformed the overall asset class benchmark.
[GSWF] Private Credit continues to grow in importance and has generated healthy returns. How do you see the asset class evolve?
[PSP] Some years ago we took a stand in terms of disregarding public credit and focusing on private credit. However, private debt requires a very different set up, including the establishment of partnerships with managers and the build up of internal teams. We see others moving into the asset class, but we believe we have a very stable team that can invest directly and outperform, so remain very positive on the outlook.
[GSWF] Canada Growth Fund has been growing its team and closing its first few transactions – how much do you expect it to grow?
[PSP] The mandate that we got from the government is CAD 15 billion in size, which may go up later on. So far, we have closed four deals for CAD 1.3 billion and we have resourced the team accordingly. The mandate is a bit different and GGF operates as an independent investment vehicle. The CGF team is gaining a lot of foresight as those opportunities were not necessarily on our radar before, e.g., financial engineering, climate, etc.
[GSWF] Almost 20% of PSP’s portfolio sits in Canada – is this your ideal balance given the recent debate?
[PSP] There is an ongoing debate about the domestic investments by Canadian funds, and we consider local opportunities as they come, including infrastructure, forestry, and start-ups. The 20% is a function of the present opportunities and size of the market.
[GSWF] PSP has not committed to any net zero goal for now – what is your ESG approach? Do you prefer exclusion or engagement?
[PSP] Our very first climate strategy was launched two years ago, when there were many unknowns and we decided not to initially commit to net zero by 2050. In the past two years, we have learned a lot about the technical aspects, including how green is our portfolio, etc. We are actually greener than we expected two years ago, and we are currently reviewing our climate strategy, which we expect to re-launch in September 2024.
[GSWF] PSP has grown to 1,000 employees – do you expect more growth and to open any other office overseas soon?
[PSP] Our strategy is based on three pillars: (i) Invest with focus and foresight; (ii) Operate with excellence; and (iii) Inspired by our mission. We used to be very siloed and working together may bring some synergies. We are working into elevating IT and analytics which will change the organization too. The HK office was opened in 2021 with the idea of covering Asia in a better manner. There may be good reasons to open another office, e.g., we have significant exposure to Australia and are quite interested in India, but we have not made any formal decision yet.
[GSWF] You have been at the CIO position for 6 years now. How do you compare it with your previous role at APG, and what are your main goals for the next 3 to 5 years at PSP?
[PSP] APG is in my heart, and I am very proud of the 15 years I worked for ABP and APG. But interestingly enough, when I was the CEO of APG AM, I kept referring my Board to the Canadian model. So, when I had the opportunity to work for PSP, I quickly jumped at it. I really like the flexibility and the dynamism / entrepreneurial spirit of the Canadian funds, and looking at new things. Going forward, we have spent a lot of time implementing the TPM approach, and I would also like us to become more technologized.
