“If you want more private investment, you need stability. We like to see governments around the world creating a stable regulatory and tax regime that facilitates long-term investment.”

John Graham, president and chief executive of Canada Pension Plan Investment Board (CPPIB) said:

‘People invest in private markets because of returns, they don’t need to be mandated if they have the right governance

Are these statements. made to the Financial Times a warning against pension schemes investing in private pensions? I don’t think so. They are a warning against pension schemes so investing without the right governance, which reinforces the UK Government’s approach to the Mansion House reforms.

• Investment follows consolidation which affords the governance to make and manage investment in private markets profitable to the scheme and its members
• Investment follows reform of regulation to make it the fiduciary duty to seek long-term return as part of an investment strategy

In 1999, the CPPI had but £7.6bn in assets, it has grown exponentially , not least by adopting a long-term growth strategy that has seen it make a return on assets of 9.6% over the past ten years. It invests for the future, not just to meet its current liabilities but to provide further opportunities for generations to come.

Belatedly (but better late than never) , the UK Government has woken up to the immense latent power of the nation’s funded pension book and determined to integrate that power into an economic strategy to promote the growth in the UK too  can provide pensions to generations of citizens yet to enter the pension system.

Rather than mandating this investment, the Government has chosen to encourage it, through a series of measures known as the Mansion House Reforms.

Since these reforms were announced in July, it has become common to hear from pension experts the canard that they conflict with the fiduciary duty of trustees and the consumer duty of those providing pensions under “contract” to manage pensions at the lowest possible cost and with the minimum exposure to risk (as explained by volatility from some risk-free rate).

Whether the scheme provides a defined benefit or one linked to an investment return the concept of maximising the pensions payable has – over 50 years – been replaced by minimising the risk that that endeavour might fail.

Hence strategies such as liability and cashflow driven investment have prevailed both in DB schemes (and through lifestyle de-risking) in DC plans.

What has not been accepted by those who regard “de-risking” as received wisdom , is that these strategies emanated from and were endorsed by Government regulation that so discouraged risk taking that schemes that had set out to provide pensions in perpetuity, professed an ambition to wind-up.

Strengthening the national pension covenant,

The CPPIP is a national pension plan whose £337bn of assets put it of an equivalent size to our Local Government Pension Scheme. But unlike our LGPS , it harnesses the economies of scale to maximise the purchasing power it has in private markets,

The Government is calling on our LGPS to continue to combine its multiple funds into an ever more consolidated pool so that it can exercise its increased clout as CPPIB does.

CPPIB is one of the world’s largest investors in private equity, which has been an important driver of returns. It invests with external managers and also invests directly in private companies in North America and Europe.

In practice, pooling provides capital to the companies whose enterprise will sponsor the pensions of the future. With capital from pension schemes, our new generation of employers can deliver the sponsorship of retirement benefits for our children and their children.

But this will only happen, if there is consensus that pension schemes are long-term and inter-generational. So long as we focus on the chances of schemes failing to the exclusion of the opportunities of schemes succeeding, we will continue to de-risk and plan for failure.

The Mansion House reforms are not planning on failure, they are planning on success. They envisage a pension landscape where , whether through guarantees (DB) or best endeavours (CDC), pension schemes  from which people can opt-out into self invested solutions or stay in and get a wage for life.

Canada , Australia and Denmark – to name but three of our peers, are striving to the same goal. We are ahead of less well organised pension systems (such as in the USA) in our national strategy. We have a competitive edge in the organisation of our workplace pension system and we have a mighty asset base of some £2.5 trillion , accumulated to pay pensions.

The sound words of John Graham should be interpreted not as a warning against more ambitious investment strategies but as an endorsement of them and in particular of the Mansion House reforms.