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CPPIB manages gains amid global competition for ‘real asset’ investments

CPPIB CEO Mark Machin is seen in this file photo.

Mark Blinch/The Globe and Mail

With record amounts of capital seeking investments around the world, the Canada Pension Plan Investment Board still found ways to invest billions of dollars in recent months.

From buying an operator of international schools to developing logistics facilities in India, there was no shortage of deals turned out by CPPIB's investment teams in its first fiscal quarter of 2018, which ended June 30. And new transactions announced since then indicate that pace is set to continue.

This comes at a time when there's more than $1.1-trillion (U.S.) being held by private capital-investment funds around the world just waiting to be put toward new investments in private equity, infrastructure, natural resources and other so-called real assets, according to a recent report from data provider Preqin. 2017 is on track to be the largest fundraising year ever for private capital funds, exceeding the peak achieved before the financial crisis.

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Mark Machin, chief executive officer of CPPIB, said that this trend is squeezing returns and encouraging more competition among investors. But he added that conversations between institutional investors have remained relatively friendly.

"There's a massive world, and a massive opportunity set, and we have long-term relationships with people," Mr. Machin said. "We intend to keep those relationships and work with the best and brightest where we can."

CPPIB, the country's largest pension fund and manager of the Canada Pension Plan's portfolio, posted net investment gains of 1.8 per cent in its first quarter. During that period, total assets climbed to $326.5-billion (Canadian) compared with $287.3-billion at the same time last year. Assets increased $9.8-billion in the first quarter, and this gain was made up of investment income of $5.7-billion after costs, as well as $4.1-billion in net CPP contributions.

"Each major CPPIB investment program contributed to first-quarter results. Global equity markets produced a significant uplift and gains from fixed income improved," said Mr. Machin of the main factors that moved returns this quarter.

Less helpful to CPPIB was the strengthening Canadian dollar, compared with most other major currencies. The pension fund's philosophy has long been not to pursue a currency-hedging strategy, taking a view that the ups and downs of various countries' coins and bills will balance out over the long life of the portfolio. That said, Mr. Machin noted that this trend had accelerated in the first half of the current quarter.

"To the extent that that continues, then we will see a dampening of our returns," he said of the near-term impact.

The Caisse de dépôt et placement du Québec had its own issue with Canada in recent months as national equities performed worst of all the developed markets in the pension fund's portfolio.

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"The weak performance of the Canadian stock market this year contrasts with its strong returns last year and with those of major markets abroad," Caisse chief executive Michael Sabia said in a statement.

Mr. Sabia noted that he is wondering about the monetary-policy actions that central banks will take in the coming months.

"There appears to be an emerging bias among central banks in favour of tightening monetary conditions. However, it remains to be seen whether these actions will be relatively modest and short-term, or more substantial and sustained over a longer period," he said. "These scenarios are likely to have quite different consequences for market performance and economic growth."

The Caisse reported financial results for the first six months of the year on Friday, producing a 5-per-cent return in the period as net assets climbed to $286.5-billion.

Both Mr. Sabia and Mr. Machin said that their portfolios had benefited from global equity-market gains. And both of their funds took steps to continue to diversify investment holdings in an effort to carve out new sources of returns in competitive markets.

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About the Author
Financial Services Reporter

Jacqueline Nelson is a financial services reporter at the Report on Business. Prior to that she was a staff writer at Canadian Business magazine, covering news and writing features on a wide variety of subjects. More

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