CPPIB reaps al­most 12% re­turn as op­por­tu­ni­ties beckon in U.S.

Kingston Whig-Standard - - BUSINESS - BAR­BARA SHECTER

The CPP Fund, which houses in­vest­ments for the Canada Pen­sion Plan, rose to $316.7 bil­lion at the end of March on the back of an 11.8 per cent net an­nual in­vest­ment re­turn.

The $37.8 bil­lion in­crease in as­sets con­sisted of $33.5 bil­lion in net in­come af­ter all CPPIB -re­lated costs, and $4.3 bil­lion in net Canada Pen­sion Plan con­tri­bu­tions.

De­spite the dou­ble-digit re­sults for fis­cal 2017 — which far out­stripped a 3.4 per cent re­turn a year ear­lier — soar­ing stock mar­kets caused the in­vest­ment fund to un­der­per­form the 14.9 per cent re­turn of its bench­mark ref­er­ence port­fo­lio, a pas­sive port­fo­lio of pub­lic mar­ket in­dexes.

“Given our de­lib­er­ate choice to build a pru­dently di­ver­si­fied port­fo­lio be­yond just pub­lic eq­ui­ties and bonds, we ex­pect to see swings in per­for­mance rel­a­tive to this bench­mark, ei­ther pos­i­tive or neg­a­tive, in any sin­gle year,” said Mark Machin, chief ex­ec­u­tive of the Canada Pen­sion Plan In­vest­ment Board, which in­vests funds not needed to pay cur­rent ben­e­fits of the Canada Pen­sion Plan.

“Over the longer term, the in­vest­ment port­fo­lio has out­per­formed the Ref­er­ence Port­fo­lio over both the past five- and 10-year pe­ri­ods,” Machin said, not­ing that the in­vest­ment port­fo­lio is be­ing built to be “re­silient dur­ing pe­ri­ods of eco­nomic stress” and to add value over the long term.

Four in­vest­ment depart­ments com­pleted 182 global trans­ac­tions in fis­cal 2017, which Machin said was among the fund’s busiest years.

He said cur­rent stock mar­ket volatil­ity and po­lit­i­cal un­cer­tainty could cre­ate op­por­tu­ni­ties for the fund in the com­ing year, and added that CPPIB con­tin­ues to hunt for al­ter­na­tive in­vest­ments such as in­fras­truc­ture and real es­tate, de­spite high prices caused by stiff com­pe­ti­tion.

While be­ing out­bid in many in­stances, CPPIB has found suc­cess in emerg­ing mar­kets and com­plex sit­u­a­tions that draw fewer bid­ders, Machin said. But he added that there would be more op­por­tu­ni­ties in the U.S. if Amer­i­can pol­i­cy­mak­ers are able to ad­vance their agenda to in­crease in­vest­ment in in­fras­truc­ture.

“If the U.S. comes on stream, that would be re­ally in­ter­est­ing be­cause it’s such a mas­sive mar­ket and there are pools of cap­i­tal that are get­ting ready to in­vest in it,” Machin said.

“If pol­icy (mak­ers) in the U.S. got their act to­gether, then it would be, that would pro­duce a good home for a lot of cap­i­tal.”

He de­clined to weigh in on what cur­rent con­tro­ver­sies sur­round­ing U.S. Pres­i­dent Don­ald Trump will mean in terms of the like­li­hood of in­vest­ment-friendly poli­cies be­ing adopted.

“It’s a bi­par­ti­san view that the U.S. needs... more in­vest­ment in in­fras­truc­ture,” he said, adding that Canada’s largest pen­sion would be in­ter­ested in ev­ery­thing from roads, to air­ports, to en­ergy trans­mis­sion.

“We would find it in­ter­est­ing and I think other peo­ple would as well. At the mo­ment there is much more de­mand than sup­ply.”

Machin and CPPIB’s chief in­vest­ment strate­gist Ed Cass said they would like to find a way to make more in­fras­truc­ture in­vest­ments in Canada, even if it means di­vest­ing of Cana­dian stocks or other in­vest­ments here in or­der to re­bal­ance the fund’s port­fo­lio.

How­ever, de­tails of how such in­vest­ments would work un­der the fed­eral gov­ern­ment’s new In­fras­truc­ture Bank still need to be worked out, they said. Among the chal­lenges is that many of the projects rolled out are ex­pected to be new “green­field” in­fras­truc­ture, which car­ries more risk than the op­er­at­ing as­sets CPPIB prefers.

“All other things be­ing equal, we pre­fer to in­vest in Canada. We un­der­stand it bet­ter than any­where else,” Machin said. “It is our home turf.”


Canada Pen­sion Plan In­vest­ment Board chief ex­ec­u­tive Mark Machin says that while the CPPIB prefers to in­vest in Canada, mar­ket volatil­ity and po­lit­i­cal un­cer­tainty could cre­ate op­por­tu­ni­ties for the fund in the U.S.

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