* AUM rises 10.5 pct as markets turn positive
* 7.1 pct rate of return claws back some of 2009 loss
* Eyeing U.S. real estate assets in next 12-24 months
* Will focus on Brazil, Mexico, China, Turkey
* (Updates with CEO comments from interview)
By Andrea Hopkins
TORONTO, Aug 12 (Reuters) - A rebound in global stock markets boosted the value of Canada Pension Plan assets 10.5 percent in the first quarter, reversing big losses in 2009, but the pension fund manager said it sees more volatility ahead.
“We’re very pleased with how the portfolio performed, but it is a short period of time,” CPP Investment Board Chief Executive David Denison said of the solid three-month rise.
“We are not taking the first quarter and multiplying it by four and assuming that is our annual results by any means.”
The CPP board, which manages Canada’s national pension fund, said on Wednesday the value of its assets under management rose to C$116.6 billion ($107.0 billion) at June 30, the end of the first quarter of its fiscal 2010.
That’s up from C$105.5 billion at its 2009 year-end in March and a sharp reversal of the 14 percent loss in asset values in fiscal 2009, when sinking global markets battered investments around the world.
Denison said the downturn -- and nascent recovery -- has created some great buying opportunities for the fund, which is looking for long-term investments in infrastructure and real estate where it can park money and manage good returns.
The beleaguered U.S. real estate market is just such an opportunity, Denison said, promising: “We’ll be significant net buyers” there in the next 18 to 24 months.
The fund manager said that while real estate markets in Canada, Britain and Europe have stabilized, downside risks remain in the United States, and more buying opportunities will emerge as people realize they cannot renew financing.
First they’ll try to sell lower quality assets, which CPP is not interested in, Denison said in an interview.
“We’ll hold out for when they are willing to sell their very good assets -- and we expect that’s going to happen. We’re looking at a number of possibilities in the United States and if valuations hit where we think is compelling ... we’ll step in and buy them.”
The CPP Board has said it is looking to shift its investments to a 55 percent foreign, 45 percent Canadian asset mix, focusing on key emerging markets where it can get a foothold, gain knowledge and control, and then expand from its base. CPP is focusing on investments in Brazil, Mexico, China, Turkey and India, Denison said.
The board said this week it entered into a joint venture with Cyrela Commercial Properties SA Empreendimentos e Participacoes (CCPR3.SA) and GIC Real Estate to invest up to US$250 million in commercial properties in Brazil.
Denison said emerging markets offered good investment opportunities, with an emerging middle class and a dearth of office, industrial and retail space.
The chief executive said the bumpy performance of the CPP in recent quarters underscores the inherent volatility of capital markets -- on the downside as in fiscal 2009, and now on the upside -- and emphasized why fund managers must be in it for the long-haul rather than short-term gain.
“The inevitable unpredictability of stock markets can give me some fitful nights of sleep, so when I come into work here and realize my job is to focus on returns that will play out over five and ten years, I get less worried,” Denison said.
The fund manager said ITS C$11.1 billion increase in assets consisted primarily of C$7.6 billion in investment income, reflecting a 7.1 per cent rate of return, and C$3.5 billion in CPP contributions not needed to pay current pension benefits.
With no need to use current income to pay benefits for another 11 years and with approximately C$28 billion of additional cash inflows anticipated between now and 2019, Denison said the fund would maintain its strategic asset weightings, with equities heaviest, followed by fixed income and finally interest-sensitive assets.
At June 30, equities represented 57.5 percent of the fund, fixed income 29.2 percent and inflation-sensitive assets 13.3 percent, the board said.
CPP said it had C$6.9 billion in real estate assets, or 5.9 percent of the fund, and C$4.6 billion in infrastructure assets, representing 3.9 percent of the fund, at quarter-end.
$1=$1.09 Canadian Reporting by Andrea Hopkins; editing by Rob Wilson