When the market turned bad, funds that had allocation maximums for certain asset classes were forced to sell. CPPIB stepped in, for instance, when CalPERS, the fund that invests the retirement assets for employees of the State of California, had too much money in private equity investments compared to its equity holdings. Since 2008, CPPIB has scooped up $3.6 billion in such investments from 19 parties.
More daring, perhaps, was the investment in the Canadian asset-backed commercial paper market. Some of the paper was bank-backed, some not—and the latter type went all pear-shaped and no-bid ugly in the fall of 2007, contaminating the bank-backed stuff in investors’ minds as well. Canadian banks, and other large funds, had all been active in the now-frozen market. CPPIB stepped in and bought nearly all the bank-issued asset-backed paper available in the industry, or nearly 40% of the market, at a large discount. The paper was later sold for a large profit as the market stabilized.
Another substantial investment that the Board made during this time was in the 407 toll highway north of Toronto. The highway was originally funded by the province and then leased in 1999 to a consortium that included a subsidiary of Spanish construction colossus Ferrovial, Montreal-based SNC-Lavalin and, later, Macquarie Infrastructure Group from Australia. But by 2009, both Ferrovial and Macquarie had run into issues with their investors thanks to the recession, and became motivated sellers.
The private investment team had its eyes on the asset because it was in the CPPIB’s sweet spot. The 407 can charge as much as it likes, and there is no prospect of new competition.
The fund was looking to pick up the Macquarie piece, and had an agreement to buy part of the Ferrovial stake in place. But then SNC-Lavalin tried to step in front by exercising its right of first refusal on the Ferrovial stake; SNC-Lavalin planned to flip its interest into a public vehicle in 2010 at a price roughly 25% higher than CPPIB was bidding.
That almost scuppered the deal. Fortunately, the market realized that large assets can’t be bought at a discount by one investor, and sold at a premium at the same time by another, and the SNC IPO ended up dead in the water. CPPIB got its piece: 40% of the highway at a cost of $4 billion. It has since syndicated part of the stake, reducing its share to 29%.
As we’ve seen, the team doesn’t spend a lot of time looking around for smaller deals. They leave that to outside managers. On the other hand, one thing CPPIB does look for is the ability to top up existing investments. It makes sense: no more work and better returns, if the investment is performing well.
More money will flow into the fund if Ottawa acts on the idea of forcing Canadians to save more for their retirements by simply raising contributions. Wiseman confirms the fund is prepared. I’m in, but can they handle a trillion dollars under management? That kind of kitty could be a possibility.
And what happens if the CPPIB team turn out to be the worst investors the world has ever seen, and lose most or all of the money? Notwithstanding all of the checks and balances in place, Wiseman cracks a smile and says, “If they raise the amount taken off your paycheque by 50%, in less than five years we’re right back where we are now.”
When he puts it that way, it sounds a little like all this investing is a bit of a high-paid make-work project for a bunch of people. But more likely, as long as we’re all investing, driving our cars on toll highways, making long-distance calls on our laptops and listening to Coldplay on our iPods, what CPPIB is really doing is quite simple: making sure we’re all ready for when our earning days are over.
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