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Canada Pension Plan fund earns 1.6-per-cent return in first quarter

Information regarding the Canadian Pension Plan is displayed of the service Canada website in 2012.

Sean Kilpatrick/The Canadian Press

The Canada Pension Plan fund earned a 1.6-per-cent return on its investments in its latest quarter as returns slowed from last year's stellar gains.

The Canada Pension Plan Investment Board, Canada's largest pension fund manager, said Thursday its assets grew by $7.7-billion in the fiscal first quarter ended June 30, boosting total assets to $226.8-billion from $219.1-billion at the end of March. CPPIB said the gain consisted of $3.4-billion in gains from investments and $4.3-billion from new contributions.

The 1.6-per-cent growth rate reflects slowing growth in key markets after the fund earned a total return of 16.6 per cent for the full year in fiscal 2014, ended March 31.

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CPPIB chief executive officer Mark Wiseman said the gain for the first quarter was in line with equity market returns, so "was an expected result." He said he has warned that last year's stellar performance is extremely unlikely to be repeated again, "maybe not in my lifetime, when everything goes right."

"I think this quarter is an indication of a more normalized type of quarter, and our results are in line with the markets -- maybe a little above market performance," Mr. Wiseman said in an interview.

CPPIB has 50 per cent of its portfolio invested in public and private equity holdings, while 34 per cent is in fixed income such as bonds, and 16 per cent is in real estate and infrastructure holdings.

The fund also announced Thursday it will invest a further $500-million (U.S.) in the Goodman North America Partnership, which is a joint venture created in 2012 between CPPIB and Goodman Group to assemble a portfolio of modern logistics and warehouse facilities in major U.S. cities.

CPPIB's total investment in the partnership is now $900-million, giving CPPIB a 45-per-cent ownership stake while Goodman Group has a 55-per-cent interest. So far, the partnership has committed to develop six warehouse projects in California with total leasable area of 6.5 million square feet.

Mr. Wiseman said there is a growing demand for modern warehouse space from global companies like Amazon, Fedex or Microsoft as e-commerce continues to grow, and as companies change how they manage their supply chain. Typically the warehouses are customized for a single tenant, who takes a long-term lease.

"What we end up with is steady cash flow from a long-term, dependable tenant," Mr. Wiseman said.

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CPPIB has other warehouse investments, including a partnership with Goodman Group in China and others in South America and Japan.

The fund said Thursday it has a five-year rate of return of 8.5 per cent after inflation is taken into account, and a 10-year return of 5.4 per cent, which is well above the rate of return required to ensure the fund is sustainable at the current contribution rate. The Chief Actuary of Canada has projected the fund must earn 4 per cent after inflation on a long-term basis to meet funding projections over a 75-year period.

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About the Author
Real Estate Reporter

Janet McFarland is the real estate reporter for The Globe and Mail’s Report on Business, with a focus on residential real estate trends. She joined Report on Business in 1995, and has specialized in reporting on corporate governance, executive compensation, pension policy, business law, securities regulation and enforcement of white-collar crime. More

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