Canada’s Largest Pension Fund Reconsiders Bonds, Looks to New Opportunities in Asia

Time to rethink government bonds?

Mark Machin, CEO of the Canada Pension Plan Investment Board (CPPIB), said at the Singapore Summit, held annually to discuss geopolitical, economic, social, and technological developments and their impacts on business in the Asia Pacific, that while the CPPIB’s long-term strategy has not changed significantly in light of COVID-19, the one area that is challenging is the current state of zero-bound interest rates and how this is changing the benefits of holding bonds. Zero-bound is a monetary policy tool whereby central banks lower short-term interest rates in hopes that it stimulates the economy by making it cheap to borrow money. For bond holders, however, this means possibly receiving less than the price originally paid when the bond comes to maturity. Central banks in the Asia Pacific are among the economies using this zero-bound tool and for the first time rates are now approaching the zero-lower bound – i.e. nearing an interest rate of zero – in Australia, New Zealand, South Korea, and Thailand.

CPPIB sees opportunity to shift towards investment in digitization . . .

As the CPPIB reconsiders the benefits of holding government bonds in large quantities in this zero-bound world, it is also considering how the pandemic is accelerating the disruptive trends that have been driving corporate and consumer change in areas such as health care, e-commerce, cities, and supply chains. One of the examples Machin provided at today’s summit was how online education has taken off in Asia and how he predicts it will soon grow in popularity in the U.S. and Europe.

Canada invests in the world . . .

As the CPPIB looks to the future of the global economy and the accelerated changes in consumer behaviour brought about by COVID-19, it has taken a special focus on the Asia Pacific. Of the fund’s nine offices, three are located in the Asia Pacific (Hong Kong, Mumbai, Sydney). As Asia leads in the digitization of consumer behaviour and is a leader in the use of digital technologies to fight COVID-19, the fund has many opportunities in the enterprises that will help shape the future global economy.