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(Reuters) - The Canada Pension Plan Investment Board, an aggressive global dealmaker, notched smaller investment gains in 2012 as markets sagged but said it sees more opportunities than ever in 2013 as hard-pressed governments and companies seek partners with cash.
CPPIB, which manages Canada's national pension fund, said on Thursday its assets rose to a record C$161.6 billion ($160.2 billion), making it the seventh-largest pension fund in the world, as its investment portfolio returned 6.6 percent for the year ended March 31.
Incoming Chief Executive Mark Wiseman said CPPIB will continue to diversify into Asia and Latin America, particularly into India, but isn't taking its eyes off of Western Europe, where many investors now fear to tread.
"I think it is fair to say that Europe is generally unattractive for investment today, but there are pockets like essential infrastructure where we can make attractive investments," Wiseman told reporters following the release of the fund manager's fiscal 2012 results.
Wiseman said Europe, with its cash-strapped governments, strained companies and banks looking to divest assets to strengthen balance sheets, is a place where CPPIB's 75-year investment horizon is an advantage.
"No matter what happens in Europe, people will continue to heat their homes and cook with natural gas. There is a reason why we look at those parts of the economy that are essential regardless of short-terms swings in the economy. We believe that those assets are defensive and are very attractive to an investor like us."
The fund struck 60 global deals in fiscal 2012, many as part of a consortium, including the US$6.1 billion acquisition of medical technology company Kinetic Concepts Inc and the purchase of a 24.1 percent stake in Norway's Gassled gas transport infrastructure for C$3.2 billion. CPPIB has private holdings in 32 countries.
It was the sixth year of the fund manager's shift to an active investment strategy. It is seeking to boost returns on its massive portfolio by buying real estate, infrastructure and other assets around the world, while providing both private equity and credit to partners looking for cash.
"If I had to guess, (I'd say) we won't be as active in fiscal 2013 as we were in 2012, but that's what I said last year and I was wrong," Wiseman said.
"If anything, for the type of investor we are, with a long-term horizon, certainty of assets and increasing capabilities to transact, I think there are just going to be greater and greater opportunities for us to make those risk-adjusted returns."
The 2012 investment gain was down from 11.9 percent a year earlier and the smallest annual gain since the fund manager suffered a losses in 2008 and 2009, but boosted the 10-year annualized rate of return to 6.2 percent. That's just above the estimated 6 percent nominal rate of return needed to keep the plan sustainable without increasing contributions.
CPPIB Chief Executive David Denison, who has led CPPIB since 2005 and retires June 30, said assets under management were projected to continue to grow rapidly over coming decades, doubling the fund's size over the next eight to 10 years.
CPPIB invests on behalf of 18 million Canadian contributors and beneficiaries, and still has about nine years before benefits paid exceed contributions and investment income will be needed to help pay pensions, in 2021.
Since 2007, CPPIB has increased staff from 154 to 811 and ratcheted up its holdings in private market investments in a bid to outpace financial market returns offered by stocks and bonds.
Investment returns were led by a 16.3 percent gain in inflation-linked bonds, a 14.4 percent gain in non-marketable bonds, a 13.0 percent rise in real estate, a 12.8 percent gain in infrastructure and a 12.1 percent gain in private foreign developed market equities.
Investments in Canadian public equities dropped 10.7 percent, while public emerging market equities fell 7.9 percent, marking the two weakest parts of CPPIB's portfolio. ($1 = 1.0088 Canadian dollars)
Reporting by Andrea Hopkins; Editing by Frank McGurty