CPPIB ‘convinced’ of PE outperformance

The Canadian pension fund's emerging markets and developed private equity investments beat respective equities returns - a phenomenon the LP expects to continue long-term.

Private equity investments in emerging markets returned 7.4 percent in the fiscal year ending March 2013 to the Canada Pension Plan Investment Board, compared to a 2.4 percent internal rate of return from emerging equity market investments, according to a company statement. 

The fund also recorded a 16.8 percent return on its private equity investments in foreign developed markets for the period, compared to a 13.2 percent return on its public equity investments in the same regions.

During fiscal 2012, CPPIB increased its assets to C$183 billion (€138 billion; $177 billion) from C$161.6 billion, delivering a

We have strong conviction that our private market assets will outperform the public markets equivalents over the long

Mark Wiseman, president and chief executive, CPPIB

gross portfolio return of 10.1 percent. The fund also garnered a 9.2 percent and 8.8 percent return from its real estate and infrastructure portfolios respectively. 

“We have strong conviction that our private market assets will outperform the public markets equivalents of the CPP Reference Portfolio over the long term,” Mark Wiseman, president and chief executive of CPPIB said in a statement. 

“This result will, however, not necessarily be demonstrated in the short term. Particularly when public markets have rapid moves up or down, our active private market strategies may show short-term underperformance or overperformance vis-à-vis the CPP Reference Portfolio, which does not accurately reflect our long term value-add expectations for these strategies.”

CPPIB also continued to diversify its portfolio by risk-return characteristics and geography during the fiscal year. Canadian assets represented 36.7 percent of the portfolio totalling C$67.4 billion, while foreign assets represented 63.3 percent of the portfolio worth C$116.1 billion.

During the fiscal year ending in 2013, CPPIB completed 36 transactions each worth over C$200 million in 11 countries around the world. These included a debt agreement with Formula One Group to finance C$400 million of a C$1 billion private high-yield loan through CPPIB Credit Investments and the US acquisition of Suddenlink Communications alongside BC Partners and Suddenlink management for C$6.6 billion.

CPPIB has also been one of the first-moving LPs into Asian private equity. In September last year, the pension appointed Mark Machin to head its Asia operations, having opened its Hong Kong office in 2008. Fellow pension fund Ontario Teachers' Pension Plan will open a Hong Kong office in 2013, a spokeswoman for OTPP confirmed earlier. 

Wiseman voiced the fund’s commitment to Asia last year, despite concerns over China’s slowing growth. He was reported by local media as saying, “Other peoples’ pessimism may very well create additional opportunity for a long-term investor like us. The path to Chinese growth, and therefore the whole region’s growth, won’t be a straight line. It will be up and down with an overall trend for growth. And, as a long-term investor, we have the luxury of not having to time the specific point in a cycle.”

CPPIB currently has C$1.9 billion invested in private equity in Asia, including Australia, representing 4.8 percent of its private investments assets, a source close to the matter confirmed.