CPP Investments has notched up its best long-term return in its 22-year history, following a 3.8% return in Q2 of its current financial year.
The annualized net return for the past decade was 11.6%, enabling the Canadian public pension fund to close the quarter at end-September with assets under management totalling C$541.5 billion (US$425 billion) – comfortably exceeding its FY2022 target. An increase of C$21.9 billion within just one quarter was 90% comprised of net income with the remainder in contributions; for the whole first half, the fund increase in value by C$44.3 billion and delivered a net return of 7.5%. The signs were that alternatives lifted its performance.
All Change at the Top
Strong return in Q2 was accompanied by fresh blood and promotions at the top team. Last month, Deborah Orida was appointed the organization's first Chief Sustainability Officer (CSO), but maintains her role as Senior Managing Director & Global Head of Real Assets. The Real Assets department that Orida leads has made significant investments that support the economy transition, including more than C$7 billion of renewables, 403 green buildings and decarbonization technologies and services.
In August, the Toronto-based fund announced two new appointments to its board of directors, including former Sun Life CEO Dean Connor and former Fortis CEO Barry Perry. Connor has decades of experience in the financial services sector and should lend his professional strength to CPP’s investments in the finance and insurance sector, such as its ownership of Ascot Group and BGL Group. Perry has long-standing involvement in the utilities and oil refining sectors, where the fund has a high level of exposure. Aside from board level appointments, CPP has made new appointments at management level. They include Korean national Suyi Kim who has been promoted from head of Asia-Pacific to global head of its US$100 billion private equity portfolio. German national Maximilian Biagosch was appointed head of direct private equity.
The fund has a long-term AUM target of C$879 billion by 2030 and C$1.68 trillion by 2040. Foreign real assets and venture capital are a significant focus of CPP’s growth strategy. In the calendar year to date, Global SWF data show infrastructure investment totalling US$5.1 billion (compared to US$5.5 billion for the whole of 2020) and real estate investment of US$6.4 billion (US$1.8 billion in 2020), devoted exclusively to foreign markets with emerging Asia growing in importance.
Venture capital is another focus of interest as CPP Investments strives to grow its portfolio’s net income and AUM. In Q2, it devoted nearly US$1.6 billion to private equity funds with a growth equity focus – Asia again made up a sizeable portion of this exposure, representing at least 60% of the fund allocations. CPP also made its own direct investments in venture capital rounds. In the calendar year to date, Global SWF data shows that VC investments by CPP total US$2.8 billion, largely in growth stage and concentrating on pharma, life sciences, fintech and edtech – areas that were boosted by the pandemic.
In July, CPP jointed with the Singaporean sovereign wealth fund GIC, alongside property developer Boston Properties, to back a US$1 billion US office real estate platform, with the Canadians stumping up a quarter of the commitment. The decision to invest in office properties in Boston, Los Angeles, New York, San Francisco, Seattle and Washington indicates a renewed confidence in office properties. Other platforms backed by CPP include a 70% stake in a C$500 million platform for residential rental properties and a 90% stake in a US$389 million multi-family venture with Greystar. In the infrastructure sector, it is leading the take-over of Ports America, North America’s biggest port operator, in a US$4 billion deal – although this is subject to scrutiny by the Committee on Foreign Investment in the United States (CFIUS).
Looking for opportunities for future growth, CPP Investments is set to increase its exposure to Asian markets which represented 24.1% of AUM in Q2 - particularly in its real estate and infrastructure portfolios. In the quarter, it entered into a joint venture with CSI Properties in Hong Kong to redevelop a mixed-use real estate project comprising residential and commercial spaces in Kowloon, Hong Kong with an equity commitment of C$169 million.
Logistics real estate has come to the fore in the public pension fund’s Asia strategy. In January, it made shown a US$200 million commitment to a US$1 billion logistics real estate joint venture in Indonesia and is working with LOGOS to "develop a diversified portfolio of facilities targeted at third party logistics (3PL), data centre and industrial tenants."
In India, it has taken a different tack, signing an office venture with Indian property developer RMZ in April. The deal targets a portfolio of US$1 billion of office property in Chennai and Hyderabad. This month CPP announced plans to increase its stake in IndInfravit, a road concession portfolio, from 27.9% to 43.8% at a cost of more than INR10 billion (US$142 million). Earlier this year, it was one of the top anchor investors in PowerGrid Infrastructure Investment Trust (InvIT) public issue, committing nearly INR8 billion (US$109 million). CPP also invested INR15 billion (US$210 million) in a joint venture with RMZ, one of the largest privately owned real estate developers in India, to develop and hold commercial office space in Chennai and Hyderabad.
Also in April, CPP Investments ramped up its commitment to a South Korean logistics real estate joint venture with ESR Cayman, doubling the total capital to US$1 billion with the Canadian public pension fund contributing most of the increase. The JV was established in August 2018 and consisted of 12 logistics facilities, of which six were sold to ESR Kendall Square’s Korean Logistics REIT in December 2020.