The Canada Pension Plan Investment Board is hunting for opportunities in areas such as real estate and private equity, as it continues to reduce its exposure to stock markets.
The CPPIB said Thursday that its investment portfolio had a negative 0.8-per-cent return in the latest quarter, losing $1.2-billion. But that result, for the three months from July to September, came during a time when stock markets dropped by about 11 per cent.
CPPIB chief executive David Denison says the fund's results demonstrate that its decision to shift away from publicly traded securities towards areas such as infrastructure and shopping malls is paying off.
"I think that the relatively modest loss is a testament to the fact that we aren't totally dependent on what happens in public markets," he said in an interview.
As it pushes further down that path, CPPIB has recently been investing in shopping malls, offices and residential complexes – largely in the U.S. – and is cementing its reputation as one of the world's most powerful private equity players. Late last month, shareholders of San Antonio-based Kinetic Concepts Inc. approved a $6.2-billion takeover by a consortium made up of CPPIB, Apax Partners and PSP Investments, in what will be one of the biggest private equity deals this year. CPPIB has participated in a number of the world's largest private equity deals in recent years, including the acquisitions of IMS Health Inc. and Tomkins PLC.
The CPP fund stood at $152.3-billion at the end of September, down from $153.2-billion three months earlier. Its investment losses were partially offset by CPP contributions.
Slightly less than half of the fund's assets, or $75.6-billion, were invested in equities. But of that, only $50.3-billion (or one-third of the fund's total assets) was in public equities, with $25.3-billion in private equities.
Fixed income securities, such as bonds and money market securities, made up 32.8 per cent, at $50-billion.
The remainder of the portfolio was in what the fund refers to as "inflation-sensitive" assets. Those include real estate ($13.9-billion or 9.1 per cent), infrastructure ($8.7-billion or 5.7 per cent), and inflation-linked bonds ($4.2-billion or 2.8 per cent).
Mr. Denison said that market conditions began to improve after the quarter ended, but have since deteriorated.
"The markets abhor uncertainty, and unfortunately we've got a lot of uncertainty in the euro zone," he said in an interview. "So we expect that we'll continue to live with some volatility over the near term in both debt and equity markets."
While the environment creates stress, it is also creating opportunities, he said. For instance, when credit markets were in disarray in August and September, CPPIB's private debt program – which provides bonds or loans – was much more active than normal.
Turmoil appears to be here to stay for some time to come, but Mr. Denison said that CPPIB is still delivering results that will ensure the pension plan remains properly funded. Its portfolio has generated $51.7-billion in the last decade, representing an annual return of 5.9 per cent.
"Even though that 10-year period incorporates the worst period in recorded equity market return history ... the fund has been able to generate the long-term return needed," he said. "I think CPP participants can draw a lot of comfort from that fact."