The Canada Pension Plan fund is boosting its real estate and infrastructure holdings as part of a growing shift toward assets with long-term income streams.
The fund reported its fiscal third-quarter financial results Thursday, disclosing it earned a 3-per-cent return in the three months ended Dec. 31 and boosted its asset base by $1.5-billion in the quarter to top $140-billion.
The gains were primarily due to strong stock market returns across the globe, said David Denison, chief executive officer of the Canada Pension Plan Investment Board. Equities represent almost 54 per cent of the fund's holdings, and totalled $75.3-billion at the end of the quarter.
"Certainly over the first nine months, both bond and equity markets have had solid performance virtually around the world," he said in an interview. "Overall, we've had very positive market movements and we've benefited from that."
While bonds and stocks still represent the bulk of the CPP fund's assets, real estate and infrastructure have become a growing proportion of the total fund, Mr. Denison said.
The fund is focusing on assets that are inflation sensitive and offer long time horizons because the CPP fund must invest to pay pensions to Canadians for decades to come, he said.
"It's very much strategic. We think infrastructure assets and real estate assets make compelling good sense for a long-horizon fund such as the CPP and we've been acquiring assets on a disciplined basis over the past four or five years in each category."
The fund reported Thursday its infrastructure holdings - such as toll roads - have grown in the past nine months to a total value of $9.5-billion, or 6.8 per cent of the fund's assets. It's an increase from $5.8-billion, or 4.6 per cent, as of last March 31.
Real estate assets have grown to $9.2-billion in value and represent 6.6 per cent of the fund's holdings, an increase from $7-billion, or 5.5 per cent, last year.
The increase is due in large part to a number of major purchases in recent months. The fund spent $3.4-billion to buy privately owned Intoll Group of Australia, which held a 30-per-cent stake in the 407 toll highway north of Toronto and a 25-per-cent interest in Australia's Westlink M7 toll highway. CPPIB also bought a further 10-per-cent stake in Highway 407 from Spain's Cintra Infraestructuras, giving it a 40-per-cent interest in the toll road.
"In the last nine months, we've seen some very large and very attractive opportunities," Mr. Denison said.
The fund also did several major real estate deals in that period, including a $487-million deal to buy a stake in a major retail and entertainment development next to the 2012 Olympics site in London, and the purchase of two office buildings in Washington.
Mr. Denison said the fund's real estate and infrastructure holdings will grow further in value when results are reported for the March 31 fiscal year end because most of the privately owned assets are only valued once a year.
"We only value those typically once a year because it does cost a significant amount to get professional external evaluations of them," he said. "So those will get reflected in our next quarter results, and generally those will obviously track what has happened in the public markets."
For the first nine months of the fiscal year, CPPIB reported an 8.3-per-cent rate of return on its investments and said assets climbed by $12.5-billion from $127.6-billion as of March 31.
The fund earned $10.6-billion from investment income in the first nine months of the fiscal year and had $1.9-billion additional asset growth from contributions by plan members.