Nov. 12 (Bloomberg) -- The Canada Pension Plan Investment Board, the country’s second-biggest public-pension manager, reported an investment gain of 4.6 percent in its fiscal second quarter as equity markets rebounded.

Investment income for the three months ended Sept. 30 was C$5.4 billion ($5.14 billion), according to a statement today from the Toronto-based pension fund. The value of Canada Pension’s assets rose to C$123.8 billion from C$116.6 billion on June 30.

“The biggest contributor to the investment returns is clearly the strength in public-equity markets,” Chief Executive Officer David Denison said today in an interview.

Canada Pension had a C$4.52 billion increase in investment income from stocks and C$1.51 billion from bonds, offsetting investment losses in real estate and infrastructure. The fund fell short of the 7.2 percent average return for Canadian pensions in the quarter, according to an estimate last month by RBC Dexia Investor Services.

Canadian pension funds posted investment gains of 14.3 percent in the first nine months of the year, RBC Dexia estimated. Canada’s benchmark Standard & Poor’s/TSX Composite Index rose 9.8 percent in the quarter, and surged 51 percent from a March 9 low.

‘Positive Signs’

“I don’t think any market observer, us included, would predict the same level of equity-market appreciation over the next three or six months as we’ve seen over the past six months,” Denison said. “But we’re all seeing positive signs of economic recovery on a global basis.”

Contributions in the quarter amounted to C$1.9 billion. At current contribution rates, Canada Pension needs to earn 4.2 percent a year to sustain payments to retirees, according to actuarial estimates. The pension manager’s four-year annualized return rate is 2.3 percent.

Canada Pension’s investments in the period included radio- transmission towers and Brazilian real estate. It also pursued a joint bid for a stake in EBay Inc.’s Skype Internet phone unit.

After the quarter ended, the pension-fund manager agreed to buy customs broker Livingston International Income Fund with Sterling Partners, agreed to a $5.2 billion takeover of IMS Health Inc. with TPG, and pursued a A$6.8 billion ($6.32 billion) unsolicited joint bid with Ontario Teachers’ Pension Plan for Australian toll-road operator Transurban Group.

Transurban rejected the bid on Nov. 5, saying the offer was “incomplete” and that it’s willing to engage in “bona fide proposals.” Denison declined to say whether Canada Pension would raise the bid.

The Canada Pension Plan covers every Canadian province except Quebec. Caisse de Depot et Placement du Quebec, the country’s largest pension manager, oversees pensions for retirees in the French-speaking province.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

Last Updated: November 12, 2009 12:11 EST