CPPIB’s John Graham says pension fund ‘open for business’ to invest in defence sector

CPPIB said it is "open for business" to Canada’s defence sector and is increasingly seeing large domestic investment opportunities, with $780-billion in assets and 12% of the portfolio currently invested in Canada. The fund is engaged in several big processes and sees opportunities across infrastructure, private equity, public equities, provincial bonds, defence, oil and gas, renewables, and AI-related infrastructure such as data centres and power generation. While CPPIB has no explicit federal pressure to invest more domestically, Ottawa is signaling a co-operative stance on attracting pension capital.

Analysis

The important second-order effect is not simply “more domestic capital,” but a marginally lower cost of capital for illiquid Canadian assets that have been structurally underfunded by public-market investors. If large pensions become consistent buyers of domestic infrastructure, defense-adjacent assets, and energy transition infrastructure, the valuation rerating will likely show up first in private markets and only later in listed proxies through takeout optionality and tighter financing spreads. That favors incumbents with scale, permitting, or contractual cash flows, while smaller competing projects may struggle to clear because large pensions can accept lower headline yields in exchange for long-duration inflation-linked assets.

Defense is the most underappreciated catalyst because Canadian institutional participation can normalize the sector domestically, reducing the political discount that has kept local capital cautious. The beneficiaries are not just primes; the real trade is in dual-use suppliers, sensors, communications, cybersecurity, and industrials that can absorb procurement ramp without the stigma of “pure-play weapons.” A multi-year spend cycle also tends to pull through higher utilization at shipyards, aerospace maintenance, and specialty manufacturing, which can create a squeeze in labor and subcontractor capacity before revenue is fully visible.

The AI comment is a useful tell: pensions are shifting from concentrated beta to picks-and-shovels, which is bullish for power, data-center infrastructure, and grid equipment rather than mega-cap software. That suggests the best public-market expression is in regulated utilities, power equipment, and colocation names with near-term capacity expansion pipelines. The risk is that this remains a narrative until procurement and capital deployment accelerate; if Ottawa fails to streamline tax, permitting, and procurement, domestic allocation targets can stay aspirational for years and the trade will fade.

Contrarian view: the consensus may be too focused on the headline promise of “more Canada” and underestimating the asset-quality filter. Pension funds are not doing patriotic capital allocation; they are arbitraging scarcity, and if domestic deals do not offer scale, inflation protection, or downside support, the capital will still flow abroad. That means the rally is likely selective rather than broad-based, with the biggest upside in assets that look temporarily overlooked but have immediate transaction potential or contracted cash flows.

Key Decisions for Investors

• Long XLU or individual regulated utility exposure for 3-12 months as a proxy for AI/data-center power demand and pension-friendly inflation-linked cash flows; pair vs QQQ to isolate infrastructure/power upside from mega-cap valuation risk.
• Long industrial defense-adjacent names with Canadian and NATO procurement leverage, such as HII or CW, on a 6-18 month horizon; upside comes from a multi-year budget cycle, while downside is limited by existing backlog, but watch for execution risk on labor and margins.
• Long CCI or EQIX on any 5-8% pullback, 6-12 month horizon, as pension capital and AI infrastructure demand should compress cap rates and support same-store growth; risk/reward is attractive if rates stabilize but suffers if capital spending delays persist.
• Relative value: long infrastructure/engineering beneficiaries (PWR, ACM) vs short broad Canadian consumer/financial beta if Ottawa starts crowding domestic capital into illiquids and raises local asset prices faster than fundamentals.
• Optionality trade: buy 6-12 month calls on renewable grid and power-equipment names such as NVT or HUBB; these are the cleanest way to express the 'picks and shovels' theme with defined downside if AI capex rolls over.