Canada Pension Plan Investment Board is scouring the globe for investments, but is unwilling to invest in Russia because of legal risks, and is taking a cautious approach to buying assets in Europe.
Chief executive officer Mark Wiseman said the fund – which invests $219-billion of assets for the Canada Pension Plan on behalf of 18 million Canadians – is "allergic" to Russia because of concerns about the country's legal system and the security of investments in the region.
"Aside from a very small amount in passive indexing, we have no exposure to Russia, and that will continue to be the case," Mr. Wiseman said in an interview Tuesday. "We continue to see very big risks in that market. I just have never been confident when you invest there that you're going to have any certainty of getting your money back."
Of the four fast-growing BRIC countries – Brazil, Russia, India and China – he said CPPIB is avoiding only Russia, and has been expanding staff and investments in the other three regions.
"We just don't know what the rules of the game there are [in Russia]. We'll invest in places as long as we can understand the rules of the game and assess the risk, but we just can't assess the risk."
CPPIB is growing rapidly and is searching for investments on a global basis, but is competing with a growing number of global funds that are flush with cash in an era of low interest rates and plentiful credit.
Mr. Wiseman said the fund is cautious about increasing its holdings in Europe as the continent continues to cope with the fallout of banking crises and instability. It's not clear that issues in the Ukraine following the Russian annexation of the Crimea have been "fully priced into European markets," and he said there is still "residual banking risk" that has not been fully accounted for in the markets.
Mr. Wiseman said CPPIB would still invest in good deals in countries such as France or Germany, "but we believe we have to invest in those things that will pay us for the additional risk that we think we're taking."
CPPIB has been increasing investments in the largest economies in Latin America, announcing in February it would be the first Canadian pension plan to open an office in Sao Paulo, Brazil, to serve as a regional hub. It will target investments in Brazil, Chile, Colombia, Peru and Mexico, which are the five strongest economies in Latin America. CPPIB has about $5.5-billion invested so far in the five countries combined.
Mr. Wiseman said the region is expected to be among the fastest-growing parts of the world in coming decades.
"If you think Europe runs the risk of being Japan – not Japan today, but Japan over the last decade and more – then where do you shift that capital to? The answer is you shift that capital to where you're going to see growth for the 10, 20, 30, 40 years."
Mr. Wiseman said he has heard criticisms of his fund's decision to ramp up investments in Brazil because it is "a mess." But he said he believes Brazil is unlikely to be a mess in 20 years as the middle class grows rapidly in a country that currently has a population of about 200 million.
"It's a country that seems to have a consensus that it's going to be a market-based economy, it seems to have a consensus that it's going to remain democratic, and it seems to have a consensus that it's open to foreign capital."