The money managers behind the Canada Pension Plan are optimistic they'll find some of their best investment opportunities in Europe in the coming months.
While the uncertainty stemming from Greece and the sovereign debt crisis has weighed on both stocks and bonds, it's also stirring up good deals for brave investors, suggests David Denison, the chief executive of the CPP Investment Board.
"We haven't yet got the Greece situation resolved, and you can see how markets are responding to that in the short term, to that degree of uncertainty," Mr. Denison said in an interview Friday. Investors retreated from stock markets around the globe after it became apparent that Greece's efforts to secure a needed bailout were still insufficient. "So that's an area of concern for us," Mr. Denison said. "The positive side of that is that it does create opportunities, particularly for a long-horizon investor."
In particular, he said European banks that are being required to improve their capital ratios are now looking at selling items on their balance sheets.
"One of our advantages is that we're a multigenerational plan. We can look beyond what might happen over the next 18 months and make good investments that will prove themselves out over five, 10 or 20 years," Mr. Denison said. "So Europe is, we believe, going to yield those kinds of opportunities for us."
His comments came as the fund reported that it earned $3.2-billion on its investment portfolio during the three months ending in December, a return of 2.1 per cent. Stocks and bonds accounted for the majority of that.
Because of benefits the fund paid out, it ended the period at $152.8-billion, up $520-million from the end of September. The fund tends to receive more CPP contributions than it requires during the first part of the year because most payrolls are set up that way, while in the second half the balance shifts back.
The fund now has 34.4 per cent of its assets, or $52.5-billion, invested in publicly traded stocks, and 31.6 per cent, or $48.4-billion, in fixed income securities such as bonds and money market instruments. A further 16.3 per cent is in private equity, 9.5 per cent in real estate, 5.6 per cent in infrastructure, and 2.6 per cent in inflation-linked bonds.
CPPIB has participated in many of the world's largest private equity deals during the past three years, and Mr. Denison said it continues to see a fair amount of activity in that space. CPPIB was part of a consortium that completed the $6.2-billion takeover of Kinetic Concepts Inc. in the most recent quarter, one of the biggest private equity transactions of the past year.
The fund was also involved in a slew of other transactions, ranging from attaining an interest in Brazilian shopping malls to a new office tower in downtown Toronto.
Mr. Denison said that real estate is a sector that CPPIB is paying a lot of attention to right now, and also said that he's seeing a growing number of infrastructure opportunities as governments continue to grapple with their tight budgets.