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