Canada Pension Plan Investment Board Chief Executive Officer Mark Wiseman said the country’s largest pension plan is scouring the world for “diamonds in the rough” as high valuations make acquisitions difficult.
Assets at the pension fund, which manages retirement money for 18 million Canadians, surged 20 percent to a record C$226.8 billion ($208 billion) in three months ended June 30, Canada Pension said in statement today.
Wiseman said access to cheap credit has created a situation where there is a lot of capital and liquidity in the market and that’s making it a “very difficult” time for a long-term investor like Canada Pension to find value.
“What we’re doing is being very patient,” he said in an interview. “We’re looking for those diamonds in the rough, and tactically divesting certain non-core assets and that’s the right thing to do in a time like this.”
Canada Pension’s announcement today it had allocated an additional $500 million to its North American joint venture with Sydney-based Goodman Group (GMG) to acquire a portfolio of warehouse and logistics facilities in the U.S. fit that strategy, Wiseman said.
“The diamonds in the rough for us tend to be those type of assets where it is a very large transaction, where there’s less competition, when there’s a degree of complexity associated with it,” he said.
Global mergers and acquisitions have accelerated in the first part of the year with almost $1.9 trillion worth of deals announced year to date, up 66 percent from a year ago, according to data compiled by Bloomberg. That level of activity has created a challenge for value investors like Canada Pension, Wiseman said.
Finding acquisitions is expected to remain difficult until there is a shift in the monetary policies of central banks, he said.
Canada Pension had yet to make a decision on whether it would sell its holdings in the expected initial public offerings later this year of Alibaba Group Holding Ltd. (BABA) or Calgary-based Seven Generations Energy Ltd.
“We are always evaluating all of our assets at any time,” he said. “There is a price at which we are sellers, there’s a price at which we are a buyer.”
Canada Pension reported gross investment return of 1.6 percent for the three months ended June 30, according to the statement. That trails the 3 percent median return in the comparable period of the C$520 billion universe of Canadian pension funds tracked by RBC Investor and Treasury Services, which reported its survey results July 28.
It was a tepid start to the fiscal year for the pension fund. Investments returned 17 percent last fiscal year, Canada Pension’s best performance since 2004.
Wiseman said he didn’t think it was a fair comparison because several of those pension funds surveyed include smaller corporate plans that use different risk and accounting methodology.
Canada Pension’s public-equity assets increased 18 percent in the quarter to C$70.7 billion from the same period last year, while the value of its private-equity portfolio grew 25 percent to C$42 billion, the fund said in the statement.
The value of fixed income investments rose 21 percent during the quarter to C$76.5 billion compared to the year-earlier period, the portfolio of real estate and infrastructure investments grew 17 percent to C$37.4 billion.
(An earlier version of this story corrected the rise in asset values.)
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