Canada’s CPPIB and McKinsey launch major project to promote long-term investment

The C$183.3bn (€137.5bn) Canada Pension Plan Investment Board (CPPIB), which oversees the assets of 18m beneficiaries, has teamed up with consultants McKinsey on a major project to promote long-term behaviour at institutional investors and companies.

The initiative, which has kicked off with six initial suggestions, three each for investors and corporates (see below), was launched by CPPIB President and CEO Mark Wiseman and McKinsey Global Managing Director Dominic Barton in an address at Canada’s Institute of Corporate Directors yesterday. The project is called “Focusing Capital on the Long Term”.

Wiseman, who took over as head of CPPIB last year, said: “If I had to boil our hypothesis today down to three words, they would be this: patience promotes prosperity.”

One of the duo’s key ideas is for asset owners to collaborate on an engagement platform, which Wiseman envisages as a non-commercial entity with “cost-sharing and no management fees”. Its sole purpose would be “to engage on governance, social and environmental factors as a proxy to instill long-term thinking”.

He said: “This entity would require sophisticated staff, financial resources and the active support of senior leaders from the parties it represents. The platform would be technology enabled, presenting virtual meeting places to optimize work and information flows, and to solicit the support of interested parties.” How this would dovetail with existing investor collaborations such as the PRI Clearinghouse and the mooted Investor Forum in the UK is not clear.

The pair is also examining how to ‘activate’ passive holdings by partnering institutional investors with activist fund firms such as ValueAct.Wiseman said: “Imagine if every institutional investor had a clear set of principles under which they would use their proxy votes. This would turn them into a long-term oriented activist hedge fund, like the Hermes UK Focus Fund.”

He concluded: “Institutional investors can advocate for change. Yet unless these investors are principal owners, the board of directors is crucial to making change happen.”

Another key objective is for the business and investment community to adopt and use a private equity-style five to seven year mindset.

Barton, the author of Capitalism for the Long Term in the Harvard Business Review in 2011, said institutional investors have the size and clout to be champions of long-term thinking.

CPPIB and McKinsey will engage with leading institutional investors and corporate directors this year on “structures and metrics” to support longer-term behaviours and value creation and release their initial recommendations in 2014.

Wiseman & Barton’s six “starting point” suggestions:
Investors:
1) An asset owner-led collaboration and engagement platform
2) ‘Activated’ passive holdings
3) Set of agreed upon engagement principles.

Boards:
1) Long-term value committees
2) New compensation models
3) Narrative integrated reporting