The cost of running the Canada Pension Plan has more than tripled since 2006-07, because transaction and management fees have gone up, finds a study by the Fraser Institute.

Between fiscal years 2006-07 and 2012-13, the total cost of running the CPP jumped to $2 billion from $600 million, despite a report from the CPP Investment Board stating its operating expenses in 2012-13 were only $490 million.

External management fees alone have gone from $25 million in 2006 to $782 million in 2013.

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Why the discrepancy between the Fraser Institute’s calculation and the CPPIB’s? CPP Investment Board excludes certain expenses from its operating budget: the management fees it pays to external consultants, the transaction fees associated with acquiring assets, and the costs incurred by four federal government departments.

In 2012-13 the CPP Investment Board spent $490 million on operations, $782 million on external management fees, and $177 million on transaction fees, for a total of $1.4 billion. The Fraser Institute added the federal government’s administrative costs of $586 million for collecting contributions and paying benefits, and the total was more than $2 billion.

“The CPP Investment Board now spends almost twice as much on management fees and transaction costs as it does on actual operations,” says Philip Cross, study co-author and former chief economic analyst for Statistics Canada.

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CPP managers use an active investment strategy. They compare returns against a reference portfolio of passive, low-cost investments. That benchmark was created in 2006, and has returned $72.7 billion, says the Fraser Institute. The actively managed portfolio has brought in $78.2 billion—an extra $5.5 billion. But it also incurred operating costs of $2 billion, meaning the net benefit has been $3 billion.

In 2012-2013, the actively managed portfolio made $62 million less, net of fees, than the reference portfolio, adds the Fraser Institute.

“Contracting out investment strategy consultation may be justifiable, but excluding those rising costs from reported expense ratios is not,” says Cross.

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The CPP had $219.1 billion in assets as of March 31, 2014. In the 12 months before that, its rate of return was 16.5%. Over the past 10 years, its annualized rate of return has been 7.1%. The board projects the pension will have $300 billion by 2020.

The portfolio is made up of 34.5% foreign-developed market securities, 28.4% bonds and money market securities, 11.6% real estate, 8.5% Canadian equities, 6.1% infrastructure, 5.7% emerging market equities and 5.2% other debt, as listed in the CPPIB’s 2014 annual report.

“For the public to understand the true costs of the Canada Pension Plan, there must be greater transparency and a full accounting of all costs,” Cross says. “Every dollar spent on running the CPP is one less dollar available for Canadians who contribute a portion of their paycheques to the plan, so it’s vital that the CPP is as efficient and as transparent as possible.”

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