Amid volatile market conditions that flattened returns, Canada Pension Plan Investment Board chief executive Mark Wiseman says the investment climate is starting to turn in the fund's favour.
CPPIB, the largest pension fund in the country and manager of the Canada Pension Plan's portfolio, said Friday that uneven equity and currency markets pushed down returns, even as private investments performed well and the fund made many new acquisitions.
The fund reported a net investment loss of 0.1 per cent in its first fiscal quarter of 2016, which marks the three months ended June 30. During that period, total assets reached $268.6-billion, an increase from the $264.6-billion at the previous quarter's end. That followed a record annual return of 18.3 per cent posted at the end of its fiscal year on March 31.
CPPIB said the $4-billion asset increase in its first quarter was made up of an investment loss of $200-million after costs, as well as $4.2-billion in net CPP contributions.
But when it comes to the environment for new investments, CPPIB's outlook is brighter. Just a few months ago Mr. Wiseman said the fund was being picky about which investments it pursued amid competitive prices for assets, but the market volatility is creating new opportunities.
"I think things are starting to change, and I think they're starting to change in our favour," Mr. Wiseman said. "Our advantage is our scale, the certainty of our assets and the long time horizon that we employ – and on top of that we have a team that is able to transact in a sophisticated way on a global basis."
Mr. Wiseman said that the first quarter "is perhaps a more attractive investment environment than we've seen in the last couple of years for an investor with our characteristics," although that doesn't represent his view on the economy or the markets overall.
Equity investments made up 49.5 per cent of assets at the end of the quarter, with 17.7 percentage points of that held in private investments, such as businesses owned and part-owned by CPPIB. Another 33.5 per cent of assets are in fixed-income investments such as bonds. Infrastructure and real-estate assets made up the remaining 17 per cent.
The quarter proved to be a busy one for the fund with 25 significant new investments across different asset classes and global locations.
One of the most significant investments was a $12-billion agreement with General Electric Co. to acquire private-equity lending business Antares Capital, alongside the firm's management. The agreement involved a $3.85-billion equity investment from CPPIB.
The Antares acquisition is one of several deals struck by CPPIB in the last couple of years that will act as a platform to build further investments in a particular area. Earlier in 2015, CPPIB added a business that will acquire and manage student dormitories, and last year it bought a business that manages a portfolio of closed blocks of life-insurance policies.
CPPIB and a partner also acquired data software company Informatica Corp. for approximately $5.3-billion (U.S.) in the quarter. "They bring a diversified set of investment returns to the fund overall, and will be able to help provide a component of that all-weather portfolio that we're trying to create that will sustain the fund for decades to come," Mr. Wiseman said of the Antares and Informatica deals.
Other major investments in the quarter included a 12-per-cent interest in a company set to become the U.K.'s largest mobile phone operator as two firms merge. CPPIB's investment, worth about $2-billion, contributed to the tie-up of O2 U.K. and Three U.K. being orchestrated by Hong Kong billionaire Li Ka-shing's company, Hutchison Whampoa.
The fund's 10-year annualized return, which looks at performance over a longer horizon, was 5.8 per cent after factoring in inflation. Canada's Chief Actuary has estimated that the Canada Pension Fund needs to earn an annual real rate of return of 4 per cent after inflation over the long term to sustain its payouts in the future.
The public equity market declines in Canada and the U.S. and currency fluctuations gave the fund a chance to prove its strength overall, according to Mr. Wiseman. "I think the investments that we've put in the portfolio have been able to deliver the exact results in choppy markets that we'd expect," he said. "For us to be flat in that environment means we've built a resilient portfolio."