Many state-owned investors have quickly adapted to crisis with bumper returns. Canada’s biggest public pension fund CPP Investments has ended its fiscal year with a net return of 20.4%, its highest ever. Its 10-year and five-year annualized net nominal returns were 10.8% and 11.0% respectively. CPP Investments’ net assets were boosted by C$87.6 billion to C$497.2 billion.
Yet, the base of comparison – the start of the first lockdown hit public equity values – was bound to lead to an impressive return as the beginning of the global economy turned around performance. Sectors that were big losers at the beginning of the pandemic were the biggest gainers by the end of March. Canadian equities witnessed a bounceback from -12.2% in FY2020 to +40.8% in FY2021, with a similar recovery in foreign and emerging market public equities. CPP’s infrastructure portfolio recovered from -1% to +12.9%, and energy and resource holdings recovered from a -23.4% to +45.8%.
However, the strength of the Canadian dollar led to foreign-exchange losses of C$35.5 billion. The public pension fund also underperformed its benchmark portfolio, which returned 30.4%. As such, CPP reported a single-year net dollar value-added of negative C$35.2 billion, after deducting all costs.
Despite these downsides, the fund is exceeding its own expectations with AUM C$48 billion above its projection of C$449 billion – and exceeding its target for FY2022. The fund has a long-term AUM target of C$879 billion by 2030 and C$1.68 trillion by 2040.
Looking for opportunities for future growth, CPP Investments is set to increase its exposure to Asian markets which represented 24% of AUM in FY2021 - particularly in its real estate and infrastructure portfolios. 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.
