2018 ANNUAL REPORT Investing for Contributors & Beneficiaries Table of Contents 2 16 Our People Global Investments 3 18 Performance Operational Highlights 4 19 Chairperson’s Report Our Mission and Investment Strategy 7 45 President’s Message Management’s Discussion & Analysis 11 76 Senior Management Team Compensation Discussion & Analysis 12 92 Purpose Governance Practices of the Board of Directors 14 10 4 Advantages Consolidated Financial Statements and Notes Who We Are CPP Investment Board is an investment organization established to help ensure the Canada Pension Plan (CPP) will be there for generations to come. We compete around the world to secure and manage public and private assets to maximize returns and deliver sustainable value. We have global teams who bring deep expertise and local knowledge. We ensure the Fund has both asset and geographic diversification to make the Fund more resilient to single-market volatility and to safeguard the best interests of current and future beneficiaries against other factors affecting the funding of the CPP. Our success depends on the strength of our governance framework, which safeguards our sole investment focus while upholding our accountability to the 20 million CPP contributors and beneficiaries. 2018 Annual Report CPP Investment Board 1 Our People ReNew Power Ventures Pvt. Ltd. We invested a combined US$391 million in ReNew Power Ventures, one of India’s leading clean energy companies. These investments by our Relationship Investments team align well with CPPIB’s overall power and renewables strategy, providing greater diversification for the CPP Fund. India’s overall power industry continues to grow and we see solar and wind as attractive renewable energy sources to meet the country’s growing demand for electricity. (l–r) Christian Hensley, Wendy Franks, Mike Burnett, Aman Bhathal, Ruoyi Liu Nord Anglia Education The Private Equity Asia team completed CPPIB’s first direct investment into private education with the acquisition of Hong Kong- based Nord Anglia Education for US$4.3 billion, alongside Baring Private Equity Asia. The premium K-12 private school operator is well positioned to benefit from the rising demand for high-quality education globally and provides a platform for future growth for CPPIB in this sector. (l–r) Deborah Orida, Kheed Ng, Frank Su, Leo Chiu, Selina Wang, Jason Hu BGL Group We acquired a 30% stake in BGL Group, the U.K. leading digital distributor of insurance and household financial services, for approximately £525 million. Through this Direct Private Equity investment, CPPIB will form a partnership with BHL to support the future growth of this financial technology business, with iconic brands like comparethemarket.com, which provides greater price transparency and choice to consumers. (l–r) Jean-Philippe Garant, Katherine Chung, Jonah Enbar, Inaki Echave, Guillaume Pfistner, Jessica Morris Parkway, Inc. The Real Estate Americas team completed its first take-private transaction with the acquisition of the outstanding common shares of Parkway, Inc., a Houston-based real estate investment trust, investing US$928 million. Parkway fits well with CPPIB’s real estate strategy to invest in high-quality assets in large U.S. markets. (l–r) Lora Gotcheva, Tianhao Fan, Jay Fischer, Hilary Spann, Howard Chang 2 CPP Investment Board 2018 Annual Report Performance Asset Mix As at March 31, 2018 Other real assets 2.6% Credit investments 6.3% Infrastructure 8.0% Government bonds, Cash and Absolute return strategies1 11.1% Public equities 38.8% Real estate 12.9% Private equities 20.3% 1. Net of external debt issuances. $356.1 Billion CPP Fund Value at March 31, 2018 11. 6% $36.7 Billion 8.0% $183.3 Billion Fiscal 2018 rate of return Fiscal 2018 net income 10-year annualized rate Cumulative net income (net nominal) after all CPPIB costs of return (net nominal) for 10-year period after all CPPIB costs Rate of Return (net nominal) Cumulative Net Income Since Inception of For the years ended March 31 (%) Active Management Fiscal years 2007–2018 ($ billions) 20 15 214.5 9.8 2.7 6.2 195.8 Investment Income Investment Management Fees Transaction Costs Operating Expenses Net Income 10 5 0 -5 -10 -15 -20 18171615141312111009 2018 Annual Report CPP Investment Board 3 Chairperson’s Report Fellow Canada Pension Plan contributors and beneficiaries, As Chairperson of the CPPIB Board, the challenges at hand. A key responsibility I am pleased to report to you on CPPIB’s of CPPIB’s Board is to ensure the significant work and development on composition of the organization’s your behalf over this past year. leadership team evolves effectively over time, while maintaining the right balance While CPPIB’s focus is firmly set on the between renewal and continuity. We long term, we are neither immune from do this by bringing in new members with nor indifferent to short-term events fresh perspectives and new skills to address impacting global markets and investors. the challenges of an ever-changing business From natural disasters to geopolitical risks, environment. This year, our Board played to new federal pension developments with a significant role in the renewal of the creation of the additional stream of our Senior Management Team (SMT), CPP, fiscal 2018 brought to both Board endorsing the appointment of four new Dr. Heather Munroe-Blum and Management a number of significant SMT members. Chairperson developmental considerations and related activities along with a sustained focus on As CPPIB’s business evolves, so too must long-term investment performance. the skills of those who manage it. Our strong, principled culture, public purpose As our CEO, Mark Machin, completes and best-in-class governance framework his second year at the helm of CPPIB, provide a constant – enabling us to he continues to demonstrate that recruit the most talented and dedicated CPPIB is in strong, capable hands. professionals from around the world. He leads the enterprise with resolute focus on CPPIB’s mandate and special Their daily work on behalf of the CPP’s public purpose, its long-term investment 20 million contributors and beneficiaries strategy, organizational culture and talent helps ensure the Fund remains sustainable development. With his leadership and over the long term. I am pleased to report an outstanding community of CPPIB CPPIB’s results for the past fiscal year colleagues, the organization continues continue to demonstrate this, the Fund to move forward on a firm course ending the year with $356.1 billion in net through an important period of assets, reflecting the second largest annual development against a global backdrop increase in the Fund’s history. of some uncertainty. Stewardship of CPPIB’s long-term This coming year marks a happy investment strategy milestone – the 20th anniversary of Since inception, CPPIB has steadily evolved CPPIB first receiving funds to invest on its investment strategy, moving from behalf of the CPP. Even as we celebrate passive to active management in 2006 and the growth and accomplishment of the extending our global reach and expertise, past 20 years, our eyes are firmly the results of which we are celebrating this set on charting for success over the year with the 10th anniversary of the Hong next 20 years and beyond. Kong and London offices. Throughout our two decades, CPPIB In fiscal 2014, Management developed its has been fortunate in its ability to recruit vision of what CPPIB should look like in and retain leaders whose skills and 2020. CPPIB 2020 was a Board-endorsed experience have been ideally suited to vision that created a roadmap to 4 CPP Investment Board 2018 Annual Report guide decision-making in relation to opportunities might be gained with a larger sophistication of those who would seek to long-term investment strategy investment Fund to manage. The Board launch cyberattacks and the Board has a development. This included a new is engaged with establishing the most priority to understand, with Management, investment framework that put in place a appropriate governance framework to how CPPIB shall best address this risk. greater dual focus on total Fund returns, ensure CPPIB is well-positioned to manage as well as the dollar value-added (DVA) these additional assets. The Board also provides governance measure we had been using to assess oversight with respect to the potential our performance. In addition, the Board Clearly, CPP enhancement is an inflection impacts of geopolitical risks to the provided oversight over a number of major point for CPPIB. As such, it creates a management of the Fund. Long-established change-management programs associated natural moment for our Board, so deeply alliances and trade relationships disappear with the CPPIB 2020 vision and the growth engaged in oversight to bolster its own as new ones emerge. Risks include of our investment activities to include new focus on risk management. As Board regional conflicts, political and regulatory strategies, geographies and structures. members, we continually benchmark risks, corruption and terrorism. Careful ourselves to ensure we are doing all we attention to, and preparation for mitigation As CPPIB passes the mid-way point can for the benefit of the Fund, to position of emerging risks are key considerations towards the 2020 vision, the Board and the Board to be agile and proactive. This in Board oversight, enterprise risk Management’s attention turned to the ensures our ability to provide effective management and culture. organization’s vision for 2025 and beyond. governance and oversight through periods As the CPP Fund grows and investment My fellow Directors and I engaged closely of rapidly emerging change and complexity. with Management as they contemplated activities expand, oversight of CPPIB’s strategic choices that exist for CPPIB A key component of good governance is operating budget remains an ongoing through strategy sessions, ongoing dialogue ensuring the organization pays proper heed Board priority.