The Canada Pension Plan Investment Board earned a 3.4 per cent return in its latest quarter, boosted by solid gains from fixed income assets and private investments.
CPPIB president and chief executive Mark Wiseman said Thursday that the board, which invests money not currently needed by the Canada Pension Plan to pay benefits, said returns from those asset classes helped it weather the ups and downs of global equity markets.
Wiseman categorized the quarterly return rate as “good,” but also noted that return rates have fluctuated over the past few quarters due a slowdown in many major global equities including the Toronto, London and Japanese markets in the CPPIB’s fiscal 2015 second quarter.
New York markets posted a gain in this period, but entered correction territory shortly afterward.
“Pick up the newspaper and look at the global equity markets and you’ll have your answer (why),” said Wiseman. “This is why we continue to say: Looking at our performance over 90 days is really irrelevant. Our portfolio — because it’s highly exposed to global financial markets — will by and large go up and down with those markets.”
Net assets for the period ended Sept. 30 totalled $234.4 billion, up from $226.8 billion at the end of the previous quarter.
It said the majority of the increase, or $7.5 billion, was due to net investment income. The remaining $100 million was due to net contributions from the Canada Pension Plan.
Despite inconsistent returns by quarter, Wiseman said the fund is still on track for a 10-year annualized investment rate of return of 5.6 per cent after factoring in inflation — which he credits to a portfolio with an “exceptionally long investment horizon.”
In the previous quarters, quarterly returns have ranged between 1.6 and 5.9 per cent.
The board is also working at shielding itself from the vagaries of public equities by continuing to invest in private assets, which now account for an estimated 40 per cent of holdings. These include real estate, private equity, private debt, intellectual property and farmland.
“What we’re trying to do is a build more of an all-weather portfolio,” said Wiseman. “We know we can take a long-term view and that’s why, as an organization, we’ve continue to build capabilities and expertise around those long-dated asset classes.”
The board would be interested in boosting its private equity portfolio but does not feel like it’s “compelled to do so,” he said.
According to a report by the Chief Actuary of Canada released in December 2013, the plan remains sustainable at the current contribution rate of 9.9 per cent for 75 years. An updated report is not expected to be released until December 2015.
Meanwhile, the most notable activities for the board in the last quarter included it participating in the initial public offering of Chinese e-commerce company Alibaba Group Holding Ltd. The board has had a stake in the company since 2011 and has invested a total of US$314.5 million to date. Alibaba raised US$21.8 billion in its public debt on Sept. 19 on the New York Stock Exchange.
CPPIB also closed a deal in the latest quarter to acquire a 39 per cent stake in Interparking, one of Europe’s largest parking lot management companies, for about $546 million.