Canada Pension Plan's money managers worth more than they cost, PBO says

Having the money in the Canada Pension Plan fund actively managed by investment experts has been worth nearly $50 billion in extra returns since the mid-2000s, says the parliamentary budget officer.

In a report Monday, the PBO compared the growth in the $392-billion public pension fund to what the same money would have made in "passive" investments that just tracked a pair of index funds, and finds the active-management strategy has come out ahead.

Passive investments have almost no expenses because there's very little buying, selling or research involved in managing them. Some personal-finance experts say passive investments are good for most people's retirement savings because professional money managers don't add enough extra value to make up for what they cost in higher fees.

The Canada Pension Plan Investment Board switched to active management in 2006.

"Given that active management requires more personnel to conduct the required research, and also involves more transactions, this strategy comes with increased complexity and additional costs," the PBO report says. "The goal is that in the long run, after netting these costs, the strategy will achieve a higher return than an identified benchmark."

So far, so good, the analysis found: In each of the 12 full years the investment board has been using the active-management approach, including in the recession at the end of the 2000s, it's brought better returns than passive investing.

Even when all the extra costs of active management of the Canada Pension Plan fund are accounted for, its experts' wheelings and dealings are worth an extra 1.2 per cent in investment returns in an average year. That's added up to $48.4 billion in extra investment profits.

A similar analysis of the pension fund for federal workers found that its managers weren't as successful, but still performed slightly better than passive investments would have over the last decade or so.

The PBO found their work has been worth an extra 0.3 per cent in returns each year, after the costs of active management were taken into account, which means $1.7 billion more in the $153-billion fund.