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A bigger nest egg

Manager spotlight DON RAYMOND

Don Raymond gives an ever-so-slightly nervous laugh when asked if his job weighs him down, but then he doesn't really answer the question. Instead, like a boy wonder building a super-computer in his basement, he plunges into the minutiae of his work.

It's a forgivable quirk. The 46-year-old senior vice-president of public market investments for the Canada Pension Plan Investment Board is responsible for about $98 billion of the CPP's total holdings of $111 billion, the public pension savings of 16 million Canadians. He oversees investments in Canadian and foreign stocks, bonds, short-term interest-bearing investments, derivatives, real estate investment trusts and--coming soon--corporate bonds.

Raymond is less a fund manager than an organizational architect. "My primary job is to build a world-class investment team," he says. "We're not building a star-based system." In effect, he is building a large investment firm staffed to evaluate risks and potential returns of investment strategies for all types of publicly traded securities.

When the CPP Investment Board started work in 1999, the entire CPP fund of $44.5 billion was invested in non-tradable government bonds. The new mandate was to diversify and make the fund grow. By the time Raymond joined in September, 2001, the portion in public-market investments had grown from zero to $12.5 billion. That money was farmed out to external managers and held in passive, index-fund-type investments.

But Raymond had the background and desire to do much more. The son of a physics teacher and a nurse, Raymond grew up in Thornhill, Ontario, briefly aspiring to become a Canadian Forces pilot. He attended the Royal Military College in Kingston for 2 1/2 years, but switched to engineering at Queen's University. After completing his undergrad, he worked for two years as a field engineer in the Gobi Desert, returning to Canada to earn his PhD.

In 1990, an engineer he knew persuaded him to join the investment dealer Burns Fry (now part of BMO Nesbitt Burns). Raymond began by researching fixed-income derivatives. Four years later, he joined Goldman Sachs, and, eventually, he ended up in New York managing global debt and equity portfolios.

The CPP Investment Board was a challenge Raymond couldn't resist. By 2004, he'd hired the first "external active managers"--outside firms that can borrow stock from the index fund and shift it to other issues they think will perform better.

But the goal isn't just to play at the margins. In 2005, Raymond began organizing an internal investment team that tries to enhance the fund's returns using various strategies. Basically, those strategies boil down to trying to replace overvalued holdings with undervalued ones. "Roughly 10% of the portfolio is actively managed today," says Raymond. "That's likely to multiply by a factor of four or five over the next four years." There are now 45 people on the public markets team and he wants to expand it to 95 within four years. He also has time on his side. Annual CPP contributions will exceed payouts until 2022, but then some investment income will be needed to help pay pensions each year.

Raymond says he came back to Canada partly out of a sense of duty. But working with one of the biggest capital pools in the world is also exciting. "It will be $250 billion in the next 10 years," he says. "We start paying out in 2022, and we continue to grow well beyond that. There's a trillion number somewhere down the road."

Why The CPP Likes Stocks

% Annual Return (Fiscal years ending March 312004200520062007*
Total CPP fund 17.6 8.5 15.5 10.1
Domestic and foreign public-equity portion 33.9 11.2 23.0 11.0

* to Dec. 31, 2006



photograph liam sharp


© 2007 The Globe and Mail. All rights reserved.

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