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Part II: Where Your CPP Money Really Goes

Posted: 01/22/2013 12:30 pm

In part one of this two-part series, we examined the Canada Pension Plan's (CPP) investment in drones, computerized soldiers, land occupation and an infamous prison scandal. Part two is dedicated to the many potential conflicts of interest -- yours, mine, the executives' and the PMO's. Some might be moral. Some might be something more.

If you look at the CPP Investment Board of Directors, you will find that all but one executive was appointed since the determined change in strategy under the Harper government. These board members are skilled leaders from different industries, but no matter their background, most of them share something in common.

Robert Astley was the President of Sun Life. CPP purchased $109 million worth of stock in Sun Life. (See CPP domestic portfolio and foreign portfolio, PDF)

Ian Bourne is Chief Executive Officer of SNC-Lavalin. CPP invested $21 million in SNC-Lavalin in spite of the company being plagued by ties to the Gadhafi regime and fraud charges that are still winding through the courts.

Bourne is also the Director of Canadian Oil Sands Limited, which has a large stake in theSyncrude project -- the project at the heart of a lawsuit involving Greenpeace and the death of wildlife. Syncrude was convicted and fined more than half a million dollars. Our CPP investments in this company total $80 million.

David Suzuki continues to educate about the misnomers of "ethical oil" and points to other companies in business with the Alberta oil sands. Exxon Mobil has a history of major oil spills. CPP gave them $553 million. Exxon funded a lobby against the Kyoto Protocol, and Canada eventually cancelled our commitment to the international community.

BP is responsible for the tragic Gulf Coast oil spill that may cost more than $7 billion in legal settlements to cover the damage. And if we look in our CPP foreign column, we'll find $347 million invested in BP.

Nexen is another curious entry with $62 million in CPP investments. It's unclear what will happen to this particular investment, since Harper made waves by allowing the company to be purchased by China. The deal was embroiled in controversy regarding national security. CSIS raised concerns about compromising Canadian intelligence, while the United States rebuked the purchaser's energy partnership with Iran. Still, it went unreported that the Securities and Exchange Commission (SEC) had to freeze assets to investigate cases of Nexen insider trading that resulted from our sell-off.

CPP also has $218 million invested in TransCanada Corp. They're the ones fighting for the Keystone XL pipeline that was met with public backlash across the continent. We have another $201 million socked away in Enbridge, which has challenged Natives land rights in preparation for the Northern Gateway pipeline.

Moving along in our Board of Directors, we arrive at Pierre Choquette was the CEO of Methanex. Douglas W. Mahaffy is the current director of Methanex. The company is the world's largest producer of methanol for petrochemical use. It received $38 million from CPP. Choquette further served as a director at TELUS, which received $116 million from CPP. TELUS employs two former consultants linked to the E-Health scandal that rocked Ontario.

Heather Monroe-Blum sits on the Board of Directors for the Royal Bank of Canada. RBC received $707 million from CPP and is the Plan's largest domestic holding. That's putting a lot of our eggs in one basket, which seems unwise, especially when that one company has been implicated in the LIBOR scandal .

Karen Sheriff heads Bell Aliant as the CEO and president. CPP has invested $21 million with that company. Joe Mark Zurel is listed as the Director of Major Drilling Group, which has also received $12 million from CPP. Nancy Hopkins is the Director of Cameco Corporation. CPP invested $43 million there. Robert Brooks was the Vice Chair of Scotiabank. CPP invested $537 million in the company. Brooks also headed Dundee Wealth. CPP invested $20 million with Dundee's parent company.

In addition to these revelations, the CPP is a substantial partner of Onex. The Onex Corporation purchased Raytheon's air division in 2006. Raytheon is a defence contractor. It's the world's largest producer of guided missiles and nuclear warheads. These weapons are involved in conflicts from Iraq to Afghanistan, from Libya to Syria and everywhere the U.S. military sets foot. The acquisition of Raytheon's flight technology created the Hawker Beechcraft company, putting Onex in the business of peddling combat planes to governments.

The managing director of Onex was Nigel Wright. He took leave from the position to become our Prime Minister's chief of staff, exactly two months after CPP entered a multi-billion dollar partnership with his company. While the Conservatives called this "great news for Canada's economic policy," the NDP's Charlie Angus cautioned Wright to "follow the rules" regarding conflict interest.

Wright was recently cleared in an ethics probe about the same issue with Barrick Gold (in which CPP holds a $330 million stake). The founding family of Barrick sat on the Onex board of directors and there were questions about personal lobbying that could have led to the PMO.

Despite the investigation's positive outcome for Wright, MP Angus took issue with the commissioner's process. When additional conflict issues were raised by OMERS, they were dismissed as mistakes in a hasty response from the Prime Minister on Wright's behalf.

As we've seen , Harper's chief of staff is also connected to Lockheed Martin (Incidentally CPP holds $78 million in that company as well). Nigel Wright's duties as director of Onex included oversight of Hawker Beechcraft, the partner to Lockheed Martin, which produced the fighter jets at the centre of F-35 debacle. This places the CPP in a bizarre love triangle with Onex and Lockheed, well beyond anything we purchased in stock.

Hawker Beechcraft's Onex deals with Lockheed include supplying the US Air Force and Homeland Security with cannon equipped fighter jets. They produce a handful of warplanes with rocket capability and their accounts include the Canadian, American, Greek, Israeli, Iraqi, Moroccan and Mexican military. One of the shared executives (PDF) managed the Lockheed F-35 file before coming to head government relations at Onex's Hawker Beechcraft.

So that introduces our business partner.

In July 2010, CPP and Onex purchased Tomkins PLC together, for $4.5 billion (£2.9 billion) with our retirement dollars. We are equally listed owners and our acquisition provides hydraulics to the oil, gas and mining industries. Tomkins was also the previous owner of Smith and Wesson guns before we bought them out.

In November 2012 CPP deepened its relationship with Onex to acquire Tomkins Air Distribution for an additional $1.1 billion (PDF); meaning when Nigel Wright leaves his position with the Prime Minister's Office, he'll presumably return to managing our CPP partnership from the private industry end.

With the 2012 expansion, Onex and the CPP came to own all subsidiaries under the parent heading. One of those spinoffs is Titus, a company that provides data security to the military in Canada, the U.S., Australia, Belgium and Denmark. Titus provides services to the whole of government, aerospace, police and financial industries.

The moral of the story is we've got to come clean about the unethical use of our retirement funds. There isn't enough money to expand CPP because the surplus was earmarked to boost the military-industrial complex. When our hard-earned money isn't being used to cause bloodshed, it's going to companies affiliated with the CPP's own CEOs and the Alberta oil sands.

Grandma and Grandpa might not sleep so well knowing all that.

 

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HUFFPOST SUPER USER
Runey
religion is why we can't have nice things.
04:54 AM on 01/23/2013
For this and many more untold countless stories of corruption and unethical practice in the finance that is the military industrial complex... one can hope one day the citizens rise.
07:45 PM on 01/22/2013
The previous article identified a shift to a much more aggressive (equities, volatility, risk-friendly) investment approach for the CPP. It cites reports that such a shift wasn't needed to meet the Plan's obligations. So, if that decision wasn't precipitated by the Plan's fiduciary obligations, what did precipitate it? Fair question for all of us, given that it's our money they're investing.

That prior piece revealed that a lot of defense-related companies can be found among the Plan's new, more aggressive holdings - perhaps more than the public realizes, companies whose goods & services the public might object to seeing their pension money promoting and to which they might resent owing any part of their retirement benefits. Good to know.

But there's more: what if such companies were potential beneficiaries of the CPP's new director-approved style - to the possible advantage of those companies' shareholders/senior officers/directors? What if the CPP's style could affect their wealth much more than whatever they might earn as a Plan director? What if the CPP is meaningless to their own retirement plans? And what if personal/business relationships among them are such that factors other than the best interests of the Plan's annuitants could intrude, even imperceptibly? What if a more bellicose Canadian foreign policy translates into better business for the companies in question? To the extent that any of the foregoing might be true, the public has to ask itself in whose primary & ethical interests their CPP monies are actually being spent
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HUFFPOST SUPER USER
Runey
religion is why we can't have nice things.
04:55 AM on 01/23/2013
fan #1.
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fallyn fleur
It's not about left or right.....
05:38 PM on 01/22/2013
Could advanced knowledge of this article have been the reason Harper's wife sold her stock portfolio??

Shame on the government to invest in companies that go against the very grain of Canadian morales and values.
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08:38 PM on 01/22/2013
Canadian morals and values? Or just your morals and values?

Cause I have no problem with these companies, and neither do countless other Canadians.

At any rate, it's near impossible to invest $165 billion in Canada and keep to investments that don't violate MacPherson's finely honed sensibilities.
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HUFFPOST SUPER USER
Runey
religion is why we can't have nice things.
04:56 AM on 01/23/2013
no, quite contrarily to your narrow vision, many Canadians would oppose this.

Or perhaps you'd like to point me to some facts based on your 'countless other Canadians' comment? No? Thought not.
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05:26 PM on 01/22/2013
"RBC received $707 million from CPP and is the Plan's largest domestic holding. That's putting a lot of our eggs in one basket, which seems unwise, especially when that one company has been implicated in the LIBOR scandal . "

The CPP has $165 billion in investment holdings. $707 million is less than half a percent of this.

I'm surprized it's so little, given that RBC is Canada's largest company by market capitalization. I'm afraid most of this article is an exercise in "how to deceive with statistics."
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HUFFPOST SUPER USER
Runey
religion is why we can't have nice things.
04:58 AM on 01/23/2013
To pretend that half a percent (which, as the article stated, is the amount for ONE company in CPP's portfolio) in such a large number is intellectual dishonesty. This does not surprise me.
03:30 PM on 01/22/2013
Trudeau as Liberal Leader has to address this misuse of CPP Funds. He will need a solid strategy to get some of the seniors vote, I for one will vote for him. He will have young people and the middle class. Notice any similarity with Tea Party in the US? Harper was so hoping Romney would win - too bad. BUT with Mark Carney gone to the UK, my concern is Flaherty/Harper ruining our economy. No TO BIG TO FAIL BANKS here and we don't need Insurance Companies managing our RRSPs either. Be very careful how you roll out your RRSPs. Don't be tricked into an annuity. OH YES...watch for Harper to raise the retirement age!
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03:27 PM on 01/22/2013
Glad to see a less hysterical title for this 2nd part.

Now if we were to take the same close look at the makeup of our largest fund companies you will find a surprisingly similar mix of companies.

Those same fund companies are part of every employee pension fund across the country, including the Ontario teachers pension fund.

The fact is there are only so many ways to invest large pools of money. You start with diversification, determine an asset mix & establish a key group of holdings within each asset mix. That key group of holdings will be the largest companies with the greatest degree of liquidity. RBC, Onex, Barrick Gold, Telus all fit the bill.

You also forgot to mention CPP holds all the other Canadian banks within it's portfolio. $537 million in Bank of Nova Scotia, $291 million in BMO, $250 million of CIBC. $707 million in Royal Bank is not out of line, RY is the most liquid on the stock exchange of all the big Canadian banks.

CPP even has $814 million in Apple, $255 million in AT&T, $114 million in Canon the copier & camera company.

In all CPP has $56.472 billion invested in equities. CPP holds equities in over 400 Canadian companies & holds equities in over 2,000 international companies.

On an ethical basis there are maybe 25 to 35 equities out of that 2,400 plus CPP likely shouldn't be in.
04:32 PM on 01/22/2013
Excellent rebuttal. Amy doesn't understand the basics of investing a large pool like the CPP.
HUFFPOST SUPER USER
Colin Speth
A Claymore for your thoughts
08:20 PM on 01/22/2013
Amy doesn't understand lots of things.
06:14 PM on 01/22/2013
It seems your & my opinions are continually butting heads. You continue to justify choices made on the basis of your second sentence 'Those same fund companies are part of every employee pension fund across the country, including the Ontario teachers pension fund.' and I continue to state that the fact that this is being done, locally, nationally & globally DOES NOT MAKE IT RIGHT!
Actually, I find you quite invigorating in how stoically you maintain your position with your factual data. Fact does not make something RIGHT. And with all due respect to your right to voice your opinion as I do mine, I hope you will not feel compelled to reply to my comments. I am deciding how I will choose to walk my talk.
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10:09 AM on 01/23/2013
Facts lead to truth, facts are necessary if we are to separate the fantasy & fictions from reality.

Real world versus fantasy world, I think the choice is obvious.
03:09 PM on 01/22/2013
Amy, this sounds more like sensationalism than investigative journalism. "RBC received $707 million form CPP"...? Actually it is an investment in the shares of the company, and most of the investments listed reflect those companies proportional size in Canadian equity markets. I completely agree that there needs to be ethics in investing, but whose ethics?
We know the War on Drugs doesn't work, but your apparent War on Pipelines is just driving the oil shippers to using the rails, and needlessly spewing diesel emissions into Canada's atmosphere. Restricting supply is never the answer..., please think this through more carefully.
02:41 PM on 01/22/2013
Excellent Part 11 to your expose` Amy! Mentally, as my eyes ran down the list of CPP investments, I was was adding up the millions, no billions, no I think it's actually trillions of dollars being invested in companies involved in producing unethical products & services. Yet, Canadian seniors barely get enough pension to survive. WHAT'S WRONG WITH THIS PICTURE???

What I'm thinking is:
1) Our government gets another decade or two of CPP contributions from each baby boomer who has to work another decade or two, to invest any which way they want.
3) The pensions baby boomers will receive on retirement are in no way proportionate to the cost of living in Canada, a topic our government does not care to address.
4) Why do we as voters think we do not have a right to question what our government does with our money? We elected these political representatives (at least those voted did so) & we can choose not to re-elect them.

I have a lot of questions and no answers. All I know is that unless Canadians begin to individually demand transparency & accountability from our elected officials all the way from the bottom of the heap to the top, nothing CAN change. Are we ready to start asking our local representatives some serious questions? Let's shake the branches of this O Canada tree & see what falls to the ground.
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HUFFPOST SUPER USER
skbull44
Check out Olduvai the novel
02:33 PM on 01/22/2013
Great article! Especially the comment about having so many eggs in the RBC basket. This is one of the banks zerohedge.com has called on the carpet for having one of the worst Tangible Common Equity ratios in the world (see http://www.zerohedge.com/news/next-domino-fall-canada and http://www.zerohedge.com/news/who-john-paulson-and-why-should-globe-and-mail-care). Why is this important? This ratio is important as it means that such banks cannot absorb losses adequately to protect shareholder equity. As zerohedge shows, amongst the 25 worst banks globally, over one third are Canadian banks and as Carmen Reinhart and Ken Rogoff remind us in This Time is Different: Eight Centuries of Financial Folly, a nation can be sitting with its back to the proverbial cliff and be pushed off unexpectedly with just a small loss of confidence.
02:21 PM on 01/22/2013
CPP = conservatives picking pockets
02:00 PM on 01/22/2013
Nice
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01:44 PM on 01/22/2013
MacPherson breathlessly informs us that the CPP invested in shares of Canada's largest companies.

Shocking! Scandalous!

They should instead have invested the whole lot into alternative energy startups, and then watched while our CPP investments go belly up one by one.
HUFFPOST SUPER USER
Colin Speth
A Claymore for your thoughts
08:21 PM on 01/22/2013
Also known as the McGuinty doctrine.
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HUFFPOST SUPER USER
NadineL
leadnow(DOT)ca
01:37 PM on 01/22/2013
great work Amy, although it is truly frightening to read this
01:20 PM on 01/22/2013
Shocking and appalling. And Canada has developed quite a sizeable military-industrial complex with innocuous names like ABC Technologies, DEF Technologies, GHI Contractors, JKL Developers, names nobody knows and nobody could remember if they did know. Like General Electric in the US, they also manufacture useful everyday stuff that give them a veneer of respectability.
12:46 PM on 01/22/2013
The CCP's investments in profitably run legal Canadian enterprises are preferable to flushing money down the drain into so called ethical funds which histoically have provided very poor returns.
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HUFFPOST BLOGGER
Gavin Magrath
03:48 PM on 01/22/2013
Wow, this is not only a strawman, it's based on an explicit factual assumption for which you provide not a shred of evidence. Well done.
09:47 AM on 01/23/2013
Actually there is plenty of literature out there to support the under performance of ethical funds .. (Google is your friend).. this is especially so when you consider that some of them are composed of up to 40% in bank stocks (hardly diversification at work) and some even invest in GMS producers like Monsanto.