Canada Pension Plan Investment Board chief executive Mark Wiseman said the market tumult that hampered investment returns this fiscal year have also presented new investment opportunities.
CPPIB, the largest pension fund in the country and the manager of the Canada Pension Plan's portfolio, said Thursday it earned a 1.6-per-cent return on its investments in its fiscal second quarter ended Sept. 30, as the fund's diversification cushioned it against global equity market declines.
"It's an interesting time for us to plant seeds. Times of market volatility and uncertainty are times where we, as a long term investor, can maybe take a bit of a contrarian view, with a belief that it will pay off over the long run," Mr. Wiseman said in an interview.
Investments in oil and gas, such as the shale assets acquired from Encana Corp. fro $900-million (U.S.) in October, provide examples of the strategy to purchase assets that will provide returns to the fund in the next five, 10 or 15 years.
In the mean time, Mr. Wiseman says investments fund made five or six years ago are now proving their value and providing diversification and returns over a period many stock markets posted declines.
"Take something as simple as the 407," says Mr. Wiseman, referencing the stake CPPIB took in the Ontario toll highway in 2010. "When equity markets are running up 25 per cent, the 407 is going to underperform -- we know that," he said. "But it provides us with that cushion and resiliency when equity and fixed income markets are down."
CPPIB saw net assets climb to $272.9-billion, up from $268.6-billion at the end of the previous quarter. One year ago, the fund had $234.4-billion under management. Asset growth consisted of $4.2-billion in net investment income and $100-million from new contributions.
Last month, CPPIB expanded its footprint with a new office in Mumbai, saying local offices help build partnerships and source new investments. But Mr. Wiseman said there's more to the strategy than that. "It's not so much to identify investment opportunities. We can do that from abroad. It's really a risk management tool," he said. "It's to ensure we're close to the investments we make. It's too ensure we're close to our partners on the ground and can be responsive."
CPPIB establishes offices in markets where it has a "critical mass" of assets and expects further growth. It has invested about $2-billion (U.S.) in India.
Equity and alternative investments made up a larger portion of the fund's portfolio than they did in the first quarter.
Equity investments account for more than half of assets, with 20.5 percentage points of that held in private investments such as businesses owned and partly owned by the CPPIB. Another 29.4 per cent of assets are in fixed-income investments such as bonds. And infrastructure and real-estate assets made up 19.7 per cent.
The fund's 10-year annualized return, which looks at performance over a longer horizon, was 5.6 per cent after factoring in inflation. That's well above the annual real rate of return of 4 per cent that Canada's Chief Actuary has estimated the fund needs to earn over the long term to sustain its payouts in the future.