CPP Investment Board

CPP Investment Board

August 11, 2017 08:00 ET

CPP Fund Totals $326.5 Billion at First Quarter Fiscal 2018

TORONTO, ONTARIO--(Marketwired - Aug. 11, 2017) -

All figures in Canadian dollars unless otherwise noted.

The CPP Fund ended its first quarter of fiscal 2018 on June 30, 2017, with net assets of $326.5 billion, compared to $316.7 billion at the end of fiscal 2017. The $9.8 billion increase in assets for the quarter consisted of $5.7 billion in net income after all CPPIB costs and $4.1 billion in net Canada Pension Plan (CPP) contributions. The portfolio achieved 10-year and five-year net nominal returns of 6.9% and 12.1%, respectively, and a gross investment return of 1.9%, or 1.8% net of all costs, for the quarter.

"Our strategy has delivered strong and stable returns over the five- and 10-year periods. We continue to position the Fund for future growth while seeking stability through diversification," said Mark Machin, President & CEO, Canada Pension Plan Investment Board (CPPIB). "Each major CPPIB investment program contributed to first quarter results. Global equity markets produced a significant uplift and gains from fixed income improved. Meanwhile, the strengthening Canadian dollar against most major currencies applied downward pressure, a trend that accelerated in the first half of the current quarter."

Long-Term Sustainability

CPPIB's 10-year annualized net nominal rate of return of 6.9%, or 5.2% on a net real rate of return basis, was above the Chief Actuary's assumption of expected performance over this same period. The real rate of return is reported net of all CPPIB costs to be consistent with the Chief Actuary's approach.

In the most recent triennial review released in September 2016, the Chief Actuary of Canada reaffirmed that, as at December 31, 2015, the CPP remains sustainable at the current contribution rate of 9.9% throughout the forward-looking 75-year period covered by the actuarial report. The Chief Actuary's projections are based on the assumption that the Fund's prospective real rate of return, which takes into account the impact of inflation, will average 3.9% over 75 years.

The Chief Actuary's report also indicates that CPP contributions are expected to exceed annual benefit payments until 2021, after which a small portion of the investment income from CPPIB will be needed to help pay pensions. In addition, the report confirmed that the Fund's performance was well ahead of projections for the 2013-2015 period as investment income was 248%, or $70 billion, higher than anticipated.

The CPP's multi-generational funding and liabilities give rise to an exceptionally long investment horizon. To meet long-term investment objectives, CPPIB continues to build a portfolio designed to generate and maximize long-term returns at an appropriate risk level. Accordingly, long-term investment returns are a more appropriate measure of CPPIB's performance than returns in any given quarter or single fiscal year.

Five and 10-Year Returns (1,2)
(for the quarter ending June 30, 2017)

Investment Rate of Return
(Nominal)
Investment Rate of Return
(Real)
Net Income3
5-Year Annualized 12.1% 10.5% $134.6 billion
10-Year Annualized 6.9% 5.2% $151.1 billion
(1) After all CPPIB costs.
(2) Rates of return are calculated on a time-weighted basis. They reflect the performance of the Investment Portfolio, which excludes the Cash for Benefits Portfolio.
(3) Dollar figures are cumulative.

Asset Mix

For the quarter ending June 30, 2017
($ billions)
$ %
Public Equities
Canadian 10.1 3.1
Foreign 97.3 29.8
Emerging 19.5 6.0
126.9 38.9
Private Equities
Canadian 1.2 0.4
Foreign 52.7 16.1
Emerging 5.8 1.8
59.7 18.3
Government Bonds
Marketable 63.1 19.3
Canadian Provincial Non-marketable 24.3 7.4
87.4 26.7
Credit Investments 18.6 5.7
Real Assets
Real Estate 40.9 12.6
Infrastructure 23.9 7.3
Other1 8.3 2.5
73.1 22.4
External Debt Issuance -21.9 -6.7
Cash and Absolute Return Strategies2 -17.4 -5.3
Investment Portfolio 326.4 100.0
Cash for Benefits Portfolio 0 0
Net Investments3 326.4 100.0
(1) Other consists of Natural Resources and Agriculture investments.
(2) The negative balance of $17.4 billion in Cash & Absolute Return Strategies represents the net amount of financing through derivatives and repurchase agreements, and the current net position from Absolute Return Strategies.
(3) Excludes non-investment assets (such as premises and equipment) and non-investment liabilities, totalling $0.1 billion for Q1 2018. As a result, net investments will differ from the net assets figure of $326.5 billion.

Q1 Investment Highlights:

Public Market Investments

  • Committed to invest EUR200 million in Elis SA (Elis), a multi-service leader in the rental, laundry and maintenance of flat linen, workwear and hygiene and well-being appliances in Europe and Latin America, to support Elis' acquisition of Berendsen Plc. The investment would increase CPPIB's ownership stake in Elis to approximately 7.7% and is subject to certain conditions, including shareholder approval.

Investment Partnerships

  • Signed an agreement alongside Baring Private Equity Asia to acquire all the outstanding shares of, and to privatize, Nord Anglia Education, Inc. (Nord Anglia) for US$4.3 billion, including the repayment of debt. Nord Anglia operates 44 leading premium international schools globally in 15 countries in Asia, Europe, the Middle East and North America. The transaction is subject to shareholder approval and customary closing conditions.

Private Investments

  • Committed equity with Encino Energy, LLC to form Encino Acquisition Partners (EAP). CPPIB has committed up to US$1.0 billion to EAP, which will focus on acquiring large, high-quality oil and gas assets with an established base of production in mature basins across the lower 48 states of the United States.

  • Invested US$141 million in the debt financing supporting Golden Gate Capital's acquisition of Express Oil Change & Tire Engineers (Express Oil Change). Based in Alabama, Express Oil Change is a leading automotive service provider in the southern U.S. with more than 300 locations across 15 states.

  • Acquired Ascend Learning LLC (Ascend), a leading provider of educational content, software and analytics solutions, in partnership with private equity funds managed by Blackstone and Ascend management.

Real Assets

  • Entered into a definitive agreement to acquire 100% of Parkway, Inc. (Parkway), a Houston-based real estate investment trust, for US$1.2 billion. Parkway owns the largest office portfolio in Houston, totalling approximately 8.7 million square feet across 19 properties. The transaction is not subject to a financing condition and is expected to close in the fourth quarter of 2017, subject to customary closing conditions, including approval by Parkway's stockholders.

  • Formed a joint venture with IndoSpace, known as IndoSpace Core, that will focus on acquiring and developing modern logistics facilities in India. CPPIB has initially committed approximately US$500 million to the joint venture and will own a significant majority stake. IndoSpace Core has committed to acquire 13 industrial and logistics parks totalling approximately 14 million square feet, from current IndoSpace development funds.

  • Acquired the 30 Bay Street site in Toronto, Ontario, alongside Oxford Properties Group (Oxford) from PortsToronto. CPPIB and Oxford will each own a 50% stake. The total transaction is valued at C$96 million. The site is located near a major transportation hub and growing urban residential area.

  • Formed a strategic investment platform with The Phoenix Mills Limited (PML) to develop, own and operate retail-led mixed-use developments across India. CPPIB will initially own 30% in the platform, known as Island Star Mall Developers Pvt. Ltd., a PML subsidiary, which owns Phoenix MarketCity Bangalore, for an equity investment of approximately C$149 million. CPPIB's total commitment to the platform is up to approximately C$330 million, which will increase CPPIB's stake in the platform up to 49%.

Asset Dispositions:

  • Signed an agreement to sell CPPIB's 25% stake in AWAS, a Dublin-based aircraft lessor, to Dubai Aerospace Enterprise. The sale was made alongside Terra Firma. CPPIB had been an investor in AWAS since 2006.

Investment highlights following the quarter end include:

  • CPP Investment Board Europe S.à r.l., a wholly owned subsidiary of CPPIB, and Allianz Capital Partners signed an agreement with Gas Natural Fenosa to acquire a 20% minority equity interest in its gas distribution business in Spain (GNDB) for EUR1.5 billion. CPPIB will invest EUR900 million and Allianz will invest EUR600 million. GNDB is the largest gas distribution network in Spain with more than 5.3 million connection points and serving some 1,100 municipalities. The transaction is subject to customary closing conditions and regulatory approvals.

  • Committed to invest US$400 million of equity in WME/IMG, a global leader in entertainment, sports and fashion, representing an 8% minority interest in the company. WME/IMG specializes in talent representation and management; brand strategy, activation and licensing; media production, sales and distribution; and event management.

  • CPPIB Credit Investments Inc., a wholly owned subsidiary of CPPIB, agreed to provide a £250 million subordinated facility to intu properties plc (intu). The subordinated facility will support intu's corporate business plans and is indirectly secured by intu Trafford Centre in Manchester, one of the U.K.'s top five shopping centres.

  • CPPIB Credit Europe S.à r.l., a wholly owned subsidiary of CPPIB, acquired the rights to a portion of future royalties in venetoclax, a cancer treatment drug, from the Walter and Eliza Hall Institute of Medical Research. The transaction includes a cash payment of US$250 million upfront and potential milestone payments up to US$75 million.

  • Acquired a 50% equity stake in Milton Park, one of Europe's largest integrated business, science and technology parks, from Hermes Investment Management for approximately £200 million. Located in the Thames Valley region of the U.K., Milton Park is home to over 250 organizations employing over 9,000 people.

  • Entered into a strategic partnership with Vermilion Energy Inc. (Vermilion) in the Corrib Natural Gas Field in Ireland (Corrib). Under the partnership, CPPIB Europe S.à r.l., a wholly owned subsidiary of CPPIB, has entered into a definitive purchase and sale agreement with Shell Exploration Company B.V. (Shell) to acquire 100% of Shell E&P Ireland Limited, which holds Shell's 45% interest in Corrib, for total cash consideration of EUR830 million. Vermilion will operate the Corrib assets after completion of the acquisition. The transaction is subject to customary conditions and receipt of all necessary government consents.

Corporate Highlights:

  • After quarter end, announced the following senior executive appointments:
    • Neil Beaumont joined CPPIB as Senior Managing Director & Chief Financial and Risk Officer on July 24, 2017, assuming an expanded role reflecting CPPIB's continued focus on rigorous risk management across the organization. Neil was most recently Vice-President, Finance, Minerals Americas, at BHP Billiton.
    • Graeme Eadie transitioned from his role as Global Head of Real Assets after 12 years with CPPIB, and continues to work in a general management role with a focus on investment approval processes.
    • Ed Cass was appointed Senior Managing Director & Global Head of Real Assets. Ed joined CPPIB in 2008 and was most recently Senior Managing Director, Chief Investment Strategist for CPPIB.
    • Geoffrey Rubin was appointed Senior Managing Director & Chief Investment Strategist, and joined CPPIB's Senior Management Team. Geoffrey joined CPPIB in 2011 and was most recently Managing Director, Head of Portfolio Construction and Research.
  • CPPIB Capital Inc. (CPPIB Capital), a wholly owned subsidiary of CPPIB, completed an international debt offering of seven-year term notes totalling EUR2 billion. CPPIB utilizes a conservative amount of short- and medium-term debt as one of several tools to manage our investment operations. Debt issuance gives CPPIB flexibility to fund investments that may not match our contribution cycle. Net proceeds from the private placement will be used by CPPIB for general corporate purposes.

About Canada Pension Plan Investment Board

Canada Pension Plan Investment Board (CPPIB) is a professional investment management organization that invests the funds not needed by the Canada Pension Plan (CPP) to pay current benefits on behalf of 20 million contributors and beneficiaries. In order to build a diversified portfolio of CPP assets, CPPIB invests in public equities, private equities, real estate, infrastructure and fixed income instruments. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, São Paulo and Sydney, CPPIB is governed and managed independently of the Canada Pension Plan and at arm's length from governments. At June 30, 2017, the CPP Fund totalled $326.5 billion. For more information about CPPIB, please visit www.cppib.com or follow us on LinkedIn or Twitter.

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