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The Canada Pension Plan Investment Board Has Confidence in Emerging Markets

Source : 2015 Annual Report by CPP Investment Board May 2015

The Canada Pension Plan Investment Board (CPPPIB) published its 2015 Annual Report this week with some interesting investing trends and strong beliefs in the Emerging Markets (EM) delivering returns. Currently, they are investing only 24% ($63.8 bn USD) of the portfolio in Canadian assets with $201 bn USD allotted across 208 global investment partners in 41 countries. Read some of these highlights...

Emerging markets equities account for approximately 5.9 % of the assets currently managed by the CPPIB, however President and CEO, Mark D. Wiseman said, ”the fund is building its capabilities in markets like India, China and Latin America in a slow and prudent progression.” He went on to say “we believe they will undoubtedly have ups and downs, but in the long run those economies will produce disproportionately higher growth than the developed economies of Europe and North America." They also have plans to open an office in Mumbai, the financial capital of India. The CPP fund reported a return of 18.3% ($40.6 bn USD) investment income after expenses, for its latest financial year ending March 31, 2015. At $264.6 bn USD, the CPP fund is one of the 10 largest retirement funds in the world today – and growing.

The CPP made some long term strategic partnerships which will give them strong returns. Wiseman says for the infrastructure deal in India, they partnered with India’s largest engineering and construction company Larsen and Toubro. The joint venture owns, among other assets, India’s largest private toll road concession portfolio. Wiseman says in the annual report that “toll roads are a good choice for CPPIB because they generate steady, reliable, long-term income (as is the 407 Express Toll Road in Ontario). With India’s rising incomes leading to more car ownership and increased traffic in coming years, the opportunity is for long-term profits from this investment, he says, we will be patient”.

The investment planning and strategy discussed in the report, is designed to fully leverage the unique characteristics of the CPP fund with its exceptionally long horizon, certainty of assets and scale and to focus on the CPPIB’s on total fund returns. The planning is done within the context of CPPIB’s mandate to maximize returns “without undue risk of loss.” Part of the Board’s role is to set the risk limits for CPPIB, while being attentive to the organization’s very long-term investment horizon. The Board believes that CPPIB is in a position where it can and should seek higher returns by prudently raising the Fund’s exposure to equity, relative to fixed income investments according to Chair person Dr. Heather Munroe-Blurn.

Asset Mix

Figure 1 Asset Mix as at Mar 31 2015
Source: Annual Report CPPP IB May 2015

Reference: For more on this report please see the link : http://www.cppib.com/content/dam/cppib/Our%20Performance/Financial%20results/CPPIB%20F2015%20AR_ENG%20(May%2021,%202015).pdf

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