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Published Sep 28, 2020

[REPLAY] Mario Therrien – The Canadian Pension Model (Capital Allocators, EP.12)

Mario Therrien shares in-depth insights into the innovative Canadian pension model, exploring strategic approaches to risk management and investment strategies at CDP. He delves into the active vs. passive investment debate, emphasizing the importance of patience, strategic partnerships, and cultural influences in achieving long-term success.
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Episode Highlights

  • Currency Risks

    Currency fluctuations and geopolitical events pose significant challenges for Canadian pension plans like CDP. emphasizes the importance of strategic partnerships and thorough due diligence in managing these risks, especially in illiquid markets such as Brazil and Mexico 1. He notes that patience and flexibility are core to CDP's investment philosophy, allowing them to navigate market volatility effectively 1.

    Patience in the context of a pension plan is being able to sort of shy away from the fads, shy away from sort of the trends, the momentum that can build up into sectors, into some stocks.

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    This approach ensures that CDP remains resilient during crises while maintaining sufficient liquidity to meet client needs 2.

       

    Investment Focus

    Investment concentration is a critical focus for CDP, where strategic decisions are made to balance risk and return. explains that while some portfolios may have significant stakes, they are managed with a deep understanding of the businesses involved 3. This knowledge allows CDP to maintain a conviction-based portfolio, ensuring diversification across various activities 3.

    The larger the absolute return that you have invested, I think that the more work has been done, the more of an edge we have in terms of the information, understanding, sort of the business, knowing the CEO, the company, their culture.

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    This strategy helps mitigate risks associated with market fluctuations and ensures robust portfolio management 2.

       

    Risk Management

    CDP's comprehensive risk management approach is designed to address various investment and operational risks. highlights the focus on absolute returns and long-term investments, which are crucial for achieving the desired outcomes for their clients 4. This involves thinking beyond benchmarks and employing tools like stress tests to manage risks holistically 4.

    We've done a great job over the years to really making sure that we have a good handle on the risks.

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    By investing in illiquid assets, CDP mitigates optical risks and avoids daily valuation biases, ensuring stability in their investment strategies 2.

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