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CPPIB chief cites investment challenges as alternative assets become ‘fully valued’

Canada Pension Plan Investment Board president and CEO Mark Wiseman is seen in this file photo.

michelle siu The Globe and Mail

The Canada Pension Plan fund has slowed its pace of investment in alternative assets such as infrastructure as the market becomes more competitive and more expensive, says chief executive officer Mark Wiseman.

The giant plan, which reported Friday that its assets have reached $192.8-billion as of Sept. 30, has been an active investor in so-called alternative investments such as real estate and infrastructure, which match the long-term nature of the fund's investment horizons. But Mr. Wiseman said the asset class is becoming "fully valued" and bargains are getting harder to find with a growing array of other investors competing on deals.

"We've been growing them more slowly in the last 18 months than we did previously because we haven't seen as much near-term opportunity," Mr. Wiseman said in an interview Friday. "So we're doing less, but what we are doing is consistent with the long-term approach that we take."

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Mr. Wiseman said the fund hasn't done a major infrastructure deal in more than a year because pricing is high, but said the caution can give way to buying when market conditions change in any asset class or country.

"All of these markets are cyclical in the long term, and we'll have a benefit being an enduring investor building a diversified portfolio that's not focused on the next 90 days – for us a quarter is 25 years," he said. "When we do see opportunity, we'll be able to move in and take advantage of it."

The Canada Pension Plan Investment Board, which manages the assets of the Canada Pension Plan, has $22-billion invested in real estate holdings and $11-billion in infrastructure assets, but has the bulk of its portfolio – $97-billion – in public and private equity holdings, and a further $62-billion in fixed income holdings such as bonds and other debt.

Mr. Wiseman's comments echo those last week of Leo de Bever, chief executive officer of pension manager Alberta Invesment Management Corp., who also said the alternative investment landscape is looking expensive and over-competitive after being a staple for large pension funds over the past 10 to 15 years.

Mr. de Bever said he now believes pension funds like his have to get more aggressive or innovative to find good deals or even create new opportunities themselves by helping initiate new projects.

Also Friday, the CPPIB reported the fund had assets of $192.8-billion as of Sept. 30, up by $3.9-billion from $188.9-billion on June 30. Most of the gain in value – $3.3-billion – came from investment gains and the rest from new contributions.

CPPIB said it earned a 1.8-per-cent return on its investments in its fiscal second quarter this year, a below-average return for Canadian pension funds during that period.

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A recent pension survey by RBC Investor & Treasury Service said pension funds on average earned 3.6 per cent in the three months ended Sept. 30, while consulting firm Mercer said a typical balanced pension fund earned 3.3 per cent in the quarter ended Sept. 30.

Mr. Wiseman said the CPP fund is so much larger and invests so differently from other pension plans that its portfolio is not comparable to most smaller pension plans, and its results are not comparable.

"The structure of our portfolio and what we're trying to do is not comparable to smaller plans, to more mature plans, to plans that don't have the scale to invest on a global basis or in private assets," he said. "It's almost like comparing apples to hockey sticks, it's so different."

He said the CPP fund is also different from most pension plans because it is not required to contribute to payouts to plan members until 2021, so it has no immediate funding obligations to meet.

The pension plan said its 10-year annualized return of 6.8 per cent, or 4.9 per cent after inflation, is still ahead of the long-term 4-per-cent annualized return after inflation that the fund is required to earn to meet its 75-year payout commitments.

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About the Author
Real Estate Reporter

Janet McFarland is the real estate reporter for The Globe and Mail’s Report on Business, with a focus on residential real estate trends. She joined Report on Business in 1995, and has specialized in reporting on corporate governance, executive compensation, pension policy, business law, securities regulation and enforcement of white-collar crime. More

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