The Canada Pension Plan Investment Board intends to be a seller, not a buyer, in the year ahead, as the deal-making market shifts into high gear.
CPPIB took part as a buyer in the largest global private equity transactions of both 2009 and 2010, with the takeovers of Tomkins PLC and IMS Health Inc. And it is in the enviable position of being one of the few pension funds that is not currently grappling with a funding shortfall, meaning that it still has the ability to chase riskier investments. But its executives say they plan to focus on managing the assets that they already have, and selling some that they are ready to part with, in fiscal 2012.
That's because the return of credit and liquidity is causing a bidding frenzy for assets, raising prices and decreasing the potential investment returns, said Mark Wiseman, CPPIB's executive vice-president of investments. And a steady run in the stock markets is leading to higher price expectations among sellers.
The latest example of that was this week's initial public offering of LinkedIn Corp. The social networking company's shares soared above $100 (U.S.) in their first day of trading, up from their IPO price of $45.
"When markets are like that, and as buoyant as that, it's a good time to be a seller," CPPIB's president and chief executive officer David Denison said in an interview.
If conditions continue, then CPPIB will look at taking some of its private-equity investments public, he added. The pension plan began investing in private equity in 2001, and had $22.7-billion worth of assets in this class as of March 31, which was the end of its 2011 fiscal year. That's up from $14.1-billion at the end of fiscal 2010. Its holdings include Avio, a maker of jet engines parts based in Italy, Black Swan Energy, a Canadian oil and gas explorer, and the National Bedding Company LLC in the U.S., which makes and distributes Serta brand mattresses.
The Ontario Teachers Pension Plan is currently testing the waters to see what it could get for its stake in Maple Leaf Sports and Entertainment Ltd., after prospective buyers suggested they'd be willing to pay what the pension fund characterized as an attractive price. It's not yet clear whether those prospective buyers will submit binding offers.
Another sign of the current deal-making environment occurred this month, after the end of CPPIB's latest fiscal year, when Microsoft Corp. announced its $8.5-billion (U.S.) deal for Skype Technologies. CPPIB had been part of an investor group that bought a 65-per-cent stake in Skype from eBay in late 2009, and the pension fund has now more than tripled its money on its original $300-million investment.
Two areas where CPPIB will not be a seller are real estate and infrastructure: The board buys those assets with a desire to hold them for decades, said Mr. Denison, who was paid total compensation of $3.05-million, including bonuses, in fiscal 2011. That was up from $2.99-million the prior year, according to the annual report released Thursday.
Mr. Wiseman received $3.14-million in the latest year, while chief investment strategist Donald Raymond was paid total compensation of $2.19-million.
The pension fund's total assets rose to $148.2-billion in the year ended March 31, up from $127.6-billion a year earlier, as its investment portfolio returned 11.9 per cent. That performance was down from the prior fiscal year, during which the portfolio returned 14.9 per cent. But between investment income and CPP contributions, the fund took in an all-time record of $20.6-billion in new assets in this latest fiscal year.
The NDP - which is now the Official Opposition in Parliament - has long opposed bonuses for CPPIB executives.
While he's pleased to see the fund is on solid ground and posting a profit, NDP MP Wayne Marston said bonuses encourage unnecessary risk-taking. Offering higher base salaries would be a better option, he said.
"If you're paying out of the fund to pay these bonuses, then that's money that could have been available to Canadians," he said, rejecting the view that the compensation levels are needed to attract talent. "That practice of giving people an incentive to take higher risk is not healthy," he said.
Bob Astley, chair of the CPPIB board of directors, said the long-term compensation framework is working as it was designed to do, and noted that the negative return that the fund posted in fiscal 2009 continues to have an impact on compensation.
"Despite two consecutive years of strong investment returns, total management compensation is still 15 per cent below its level in 2008," Mr. Astley noted.
With files from Bill Curry