Canada Pension Plan (CPP) Performance & Structure

CPP’s long-term performance has been solid, but it hasn't outpaced key benchmarks like the S&P/TSX Index or gold. Meanwhile, its domestic investment share continues to shrink, while U.S. exposure grows.

📈 Returns

🔹 Over the past 20 years, CPP has delivered an annualized return of 7.16% — slightly below gold (8.8%) and the S&P/TSX Index (8%).

🔹 This outcome reflects two key factors:

• 1️⃣ Risk Tolerance: CPP maintains a relatively conservative risk profile, which requires allocating a substantial portion of the fund to bonds. This prioritizes stability and capital preservation over aggressive returns.
• 2️⃣ Market Efficiency: As the Efficient Market Hypothesis (EMH) suggests, markets reflect all available information, making it difficult to consistently outperform benchmarks through active management.

🌍 Geographical Allocation

🔹 In the past decade, CPP’s Canadian investment share has dropped from 31% to just 12%, while exposure to U.S. markets has increased.

🔹 This may be partly due to stronger U.S. equity performance and currency effects, but it also reflects a declining appetite to invest in Canadian assets.

🏗️ Fund Structure

CPP’s allocation to fixed income has decreased from 34% to 25% over the past 10 years. Today, over half of the fund is held in a mix of public and private equities.

🔍 Verdict

🔹 CPP’s performance has been strong, but not exceptional, especially relative to long-term benchmarks.

🔹 The low allocation to Canadian investments (12%) raises some concerns — even if partially justified.

✅Recommendation:

🔹 Introduce a minimum quota for Canadian investments — ideally, at least 25% of the fund should be invested within Canada.

🔹 Allocate at least 2% of the fund to Canadian venture capital firms focused on providing seed funding to startups and underfunded businesses with strong long-term economic potential.