CPPIB looking for buying opportunities in sell-off
CEO says fund alert to bargains in volatility
TORONTO• The head of the Canada Pension Plan Investment Board sounded optimistic Friday about opportunities that may arise out of the recent return of volatility to markets.
“I think there was a lot of euphoria coming into the new year, so I think some of that’s blowing off here,” said Mark Machin, president and chief executive of CPPIB, in an interview. “Hopefully, there’s opportunity thrown up by some of this volatility. Certainly, our public market teams are looking at better entry positions into stocks that wouldn’t otherwise be there because there’s volatility.”
CPPIB reported Friday net assets of $ 337.1 billion for its fiscal third quarter ended Dec. 31 2017, up from $ 328.2 billion for the previous quarter. Canada’s largest pension fund said its net return was four per cent for the quarter, 12.1 per cent on a five-year annualized basis, and 7.4 per cent on a 10-year basis.
For the nine months to date in its fiscal year, CPPIB reported that the fund had increased by $ 20.3 billion, delivering a net return of 6.7 per cent.
CPPIB, which manages investments for the Canadian Pension Plan, chalked up some of the gains to the scorching pace of international stock markets last year ( as of the end of the quarter, 30.5 per cent of its assets were foreign public equity, totalling $ 102.7 billion). That pace finally slackened this past week, helping trigger the first correction in the Dow Jones industrial average in two years.
The recent downturn also marked the first time that the market has entered correction territory since Machin was appointed to lead the fund in 2016.
Machin said the “fundamental reason” driving the volatility has been the long- standing anticipation of rising interest rates. He also said the shake- up did not change anything about CPPIB’s approach, which includes long- term infrastructure and real estate investments.
“This type of short- term volatility doesn’t affect us at all,” he added. “It’s part of what we’re set up to be protected against, because we broadly diversify the portfolio across different geographies, across different strategies, across different asset classes.”
However, as something to watch, Machin highlighted CPPIB’s recent creation of a group focused on power and renewable energy. CPPIB came to terms with a Brazilian energy company during the quarter on forming a new joint venture that purchased two working wind farms in the northeastern part of the South American country. The fund made an initial investment of $ 272 million in equity as part of the transaction.
CPPIB also sold an 18-percent ownership stake in a European heat and water sub- metering firm during the quarter for net proceeds of approximately $ 1 billion. Following the quarter, CPPIB announced it would pay US$ 144 million for a 6.3-per-cent ownership stake in an India renewable energy developer.
The quarter also preceded some of CPPIB’s more recent transactions, such as a US$ 20- billion deal involving Thomson Reuters’ financial and risk business. A consortium led by U.S.-based private equity firm Blackstone, and including CPPIB, aims to own 55 per cent of the financial data business through a new company.
CPPIB also announced several coming changes to its C- suite this week, with senior managing director and chief operations officer Nick Zelenczuk, as well as senior managing director Graeme Eadie, to retire at the end of May and March, respectively. Eric Wetlaufer, senior managing director and global head of public market investments at the fund, is also departing effective May 31.
Machin said the moves were part of “planned renewals.”
“We’re going through processes to make sure we have strong successors in place, and doing that sort of transparently,” he said.