CPPIB boss says current returns not sustainable: Reuters

Canada Pension Plan Investment Board on Thursday reported an 11.6 percent return on investments in its latest fiscal year but warned double-digit growth was not sustainable with competition for assets intensifying.

CPPIB, which manages Canada’s national pension fund and invests on behalf of 20 million Canadians, said it had benefited in the past year from strong equity markets and a surge in returns from infrastructure investments.

The fund has become one of the world’s biggest infrastructure and real estate investors, pursuing a strategy of diversifying internationally and away from public equity and bond markets, helping it achieve an average annual net return of 12.1 percent over the past five years.

However, its President and CEO Mark Machin warned that returns will slow, with competition for assets being the biggest challenge facing the fund.

“We can’t continue to expect double-digit returns year-after-year,” he said. “Valuations are full, competition for private assets is incredibly high and the rising rate environment will ultimately put pressure on financial assets, particularly interest-rate sensitive assets—infrastructure, real estate and bonds.”

The fund said it ended the year ended March 31 with net assets of $356.1 billion (US$278.7 billion), compared with $316.7 billion a year ago, the second largest annual growth since the fund’s creation in 1997.

A pick-up in global growth boosted corporate profits and commodities during 2017, benefiting global equity markets.

“Soaring public equity markets through the first nine months of the fiscal year were the primary source of growth,” said Machin. “As volatility returned during the fourth quarter, our private holdings proved resilient, adding significant value.”

The fund said it achieved a 15.2 percent return from its infrastructure investments during the year, more than double the year before and a 9.4 percent return from real estate investments. It made a return of 11 percent from public equity investments outside of Canada.

“The protection for us is diversification,” said Machin. “We’ve got to be diversified across geographies, asset classes and strategies.”

Update: CPPIB reported a 16 percent return on its foreign private equity investments and a 19.5 percent return on its emerging private equity investments in fiscal 2018, both up from the prior year.

The fund also reported an 1.8 percent return on its Canadian private equity investments, which is down from fiscal 2017.

(Reporting by Matt Scuffham Editing by Bernadette Baum and Frances Kerry)

(This story has been edited by Kirk Falconer, editor of PE HUB Canada)