The Canada Pension Plan Investment Board's reference portfolio is heading to the classroom this fall as a case study in factor investing and how it guides the plan's investment strategy.

Andrew Ang, the Ann F. Kaplan professor of business at Columbia Business School and a proponent of factor investing, said the case study will look at how the reference portfolio of the C$161.6 billion (US$158.7 billion) CPPIB does not use asset classes, but rather looks to the underlying return factors to determine which investments are the best fit to meet the fund's liabilities.

“All it involves is really thinking through the real drivers of the returns,” Mr. Ang said of the factor approach. “I personally don't see any other consistent way of investing.”

The reference portfolio, created in 2006, serves as a performance benchmark against which the CPPIB's value-added activities are measured. It plays the role of defining what factors the board should choose and how to map assets to those factors, Mr. Ang said.

“I consider them (the CPPIB) to be on the leading edge for practicing factor investing,” he said.

Mr. Ang argues that hedge funds and private equity are not asset classes but “souped-up versions” of the same factors as public equity markets, evidenced by their failure to provide proper diversification during the financial crisis.

“That's what factor investing does — it looks through labels,” Mr. Ang said. — KEVIN OLSEN