August 10, 2012 / 1:12 PM / 5 years ago

UPDATE 3-Canada Pension Board ekes out small Q1 gains

* Looks to China, Europe for diversification
    * CEO says beaten-down assets may appeal
    * Notches up 0.5 pct return on investments
    * Cites market turbulence, global headwinds


    By Andrea Hopkins
    Aug 10 (Reuters) - The Canada Pension Plan Investment Board,
one of the world's biggest pension funds, notched small up gains
in the first quarter as financial markets sagged, an d said it is
looking to China and Europe as well as oversold assets for
investment opportunities.
    "We are spending time looking at infrastructure
opportunities in Europe. We are spending time looking at certain
public markets that have been overly beaten-up relative to what
we think fair value is," CPPIB chief executive Mark Wiseman said
in an interview on Friday.
    "(We are) spending more time in those markets and regions
that are developing and growing relatively more quickly. A great
example of that is China... China will be the largest economy in
the world."
    CPPIB, which manages Canada's national pension fund, said
its assets rose to a record C$165.8 billion ($167.2 billion)
from C$161.6 billion three months earlier, as its investment
portfolio returned 0.5 percent for the quarter ended June 30.
    Its massive size and long investment horizon has enabled
C PPIB t o do deals around the world, especially as cash-strapped
governments and companies seek partners with deep pockets as the
global economy wobbles.
    CPPIB shifted to an active investment strategy just over six
years ago, seeking to boost returns on its portfolio by buying
real estate, infrastructure and other assets, while providing
private equity and credit to partners looking for cash.
    Wiseman said he wants to continue to diversify the fund's
holdings and investments by geography and asset class, adding
breadth to a portfolio that has so far been heavy on real estate
and infrastructure.
    "Generally we are continuing to look for investments in
private asset classes which are more difficult to put on the
books. We have about a third of the portfolio today in private
asset classes -- things like real estate and infrastructure,
private equity and private debt," Wiseman said.
    "Those transactions you can't just go out and push a button
... and purchase them. It takes time and relationships and
effort in order to effect those transactions, so it is an area
we are continuing to look at."
    Wiseman said the CPPIB's investment returns in a tough first
quarter reflect resilience against poor stock markets and global
economic headwinds.
    The C$4.2 billion increase in net assets included C$0.8
billion in investment income, C$3.5 billion in net CPP
contributions and C$0.1 billion in operating expenses. 
    Wiseman said the fund, which ranks in the top 10 of global
pension funds by assets, is alert to the kind of deals that
emerge in tough market conditions.
    "We continue to assess opportunities today with a long
horizon view, especially where we can realize value by
leveraging our unique set of comparative advantages," Wiseman
said. "We are patient and will act, or not, on investment
opportunities according to our ability to create value in the
long run."
    The fund's five-year annualized rate of return was 2.1
percent at the end of the quarter, while the 10-year rate of
return was 6.3 percent.
    CPPIB on Thursday announced its first direct investment in
U.S. industrial real estate, launching a new logistics and
industrial venture with Australian industrial property manager
Goodman Group. 
    The venture will make targeted investments in U.S. logistics
hubs on the east coast and the west coast.
    The two firms said the venture will have a total equity
investment of $890 million, with Goodman investing 55 percent,
or $490 million, and CPPIB investing the remaining $400 million.
    In December, Goodman and CPPIB expanded their joint venture
in China, formed in 2009, to own and develop logistics assets in
mainland China.  
    CPPIB invests on behalf of 18 million Canadian contributors
and beneficiaries. It still has about nine years before benefits
paid exceed contributions and it will need investment to help
pay pensions.

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