The Canadian Pension Plan Investment Board says its $1.2 billion second-quarter loss would have been worse if the fund manager hadn’t worked so hard to diversify away from stock investments since the recession.
“We had a modest investment loss of less than one per cent,” said David Denison, president and CEO of the board _ which invests money not required to pay benefits to millions of retired Canadians under the plan.
“The reason our results were almost flat is because we have diversified exposures away from public markets and we think the less volatility in our results just reflects the benefits in doing that.”
Like most big investors, pension funds were hit hard by sagging stock markets in the summer quarter as fears of a European recession and weakening U.S. and Chinese economies sparked selloffs around the world.
That wiped out tens of billions of dollars in the value of stocks held by pension and mutual funds and in other investments needed to pay future retirement benefits.
Canadian stock markets fell 13% in the July-September quarter, while foreign developed markets were down 10% and emerging markets tumbled 16%, he noted.
The Canada Pension Plan Fund ended the 2012 fiscal second quarter ended Sept. 30 with investments totalling $152.3 billion.
That was down from $153.2 billion at the end of the first quarter, with the investment loss of $1.2 billion, offset by contribution gains.
But the levels were a significant increase from $138.6 billion in the second quarter of 2011.
The investment rate of return was minus 0.8%, offset partially by inflows of CPP contributions.
In the most recent quarter publicly traded stocks made up 33% of the portfolio, while private equities were 16.6%.
That shifts the balance from the second quarter of its 2011 fiscal year when public equity investments represented 38.6% of its portfolio and private equities made up another 14.6%.
Denison said the board has never considered hedging against stock market volatility as some of the big insurers have done because it is a multi-generational fund that won’t be drawn upon for many years.
“We don’t believe, quite frankly, that anybody can time what markets will do quarter by quarter, and we don’t even try to do that,” Denison said.
The fund’s huge pool of capital and long-term investment strategy has allowed it to ride out market volatility and even take advantage of opportunities to buy up a number of promising assets from distressed owners.
The pension fund manager has been buying up infrastructure and real estate assets around the world. It likes those investment opportunities because they have a predictable cash flow, offer inflation protection and are easy to maintain.
During the quarter, the CPPIB completed the largest private equity transaction in the world in 2011.
The board, as part of a consortium that included Apax Partners and PSP Investments paid $6.2 billion for medical technology company Kinetic Concepts, Inc.
“Even in tough market conditions as we saw in the most recent quarter, we still are able to find these kind of attractive transactions and investments to add to the portfolio.”
Denison said credit markets became very challenged in August and September, which has dwindled the number of competitors for the type of quality investments the board is seeking.
“It points to one of our comparative advantages as an investor,” Denison said.
Among the deals announced in the quarter were:
- The acquitting of two large shopping centres in St. Louis, Missouri
- A $244 million equity investment in a joint venture with Global Logistic Properties
- More than $290 million equity investment in several multi-family units across the U.S.
- A $292 million investment in a joint venture with Grosvenor Fund Management to invest in office properties in the West End and Midtown areas of London
For the fiscal year-to-date, the fund increased by $4.1 billion.
The board is a money manager that invests surplus contributions on behalf of 17 million Canadian contributors and beneficiaries of the Canada Pension Plan.