Mark Wiseman, the chief executive of the Canada Pension Plan Investment Board, which invests on behalf of Canadian workers and retirees, says he won?t be lured into competition for hot real estate assets that could drive down returns.
?We have the luxury of not having to invest ? and we can pick our spots,? Mr. Wiseman said in an interview Friday after the CPP Fund reported third-quarter financial results.
?Presently in both debt capital markets and in real estate, we?re seeing a lot of competition for assets ? and we?re being very cautious.?
The situation is particularly acute in real estate, where there is limited supply of the well-situated, top-tier retail and office properties generally sought by CPPIB.
By way of example, Mr. Wiseman pointed to the record $1.27-billion paid by two real estate investment trusts in March for the downtown Toronto headquarters of the Bank of Nova Scotia.
He said he expects CPPIB?s private equity teams to be busier over the next little while, noting the appetite for leverage that was demonstrated in the recent US$24.4-billion privatization of computer maker Dell. CPPIB, which invests the funds not needed by the Canada Pension Plan to pay current benefits, was not involved with that deal.
The fund reported gross investment returns of 3% in its fiscal 2013 third quarter.
?We continued to see solid returns this quarter due to strong increases in global public equity markets and income generated by the portfolio?s private assets,? said Mr. Wiseman, who took the helm at the CPPIB last July following the retirement of David Denison.
?This quarter?s results reflect the strength and capabilities of our diversified global platform, as all investment groups delivered gains.? In the first nine months of the fiscal year, which ends in March, the CPP Fund increased by $11-billion to $172.6-billion. This includes $9-billion in investment income before operating expenses, representing a gross investment return of 5.5%, and $2.4-billion in net CPP contributions. The fund?s asset mix at the end of December included public and private equities totalling $85.4-billion, $57.8-billion of fixed income and real estate, and infrastructure assets of $29.6-billion.
The CPPIB said net assets as atDec. 31 were $172.6-billion, up $2.5-billion from the quarter ended Sept. 30.
The increase in net assets after operating expenses resulted from $5-billion in investment income, offset by $2.4-billion of seasonal cash outflows.
The CPP fund says it routinely receives more CPP contributions than are required to pay benefits in the first part of the calendar year and then remits a portion of those funds for benefit payments in the latter part of the year.
In the latest triennial review released in November 2010, the chief actuary of Canada reaffirmed that the CPP remains sustainable at the current contribution rate of 9.9% throughout the 75-year period of his report. That includes the assumption the fund will attain an annualized 4% real rate of return.
With files from The Canadian Press
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