CPPIB Overtakes the Caisse?

Karen Mazurkewich of the National Post reports, CPPIB sees big jump in assets-under-management in Q2:

It wasn’t just the stock markets that added $8.9-billion to the coffers of the Canada Pension Plan Investment Board for the quarter that ended in September.

“Every asset class around the world had positive results,” said David Denison, chairman of CPPIB. The pension plan ended its fiscal second quarter with $138.6-billion in assets-under-management, up from $123.8-billion this time last year thanks to gains across all asset classes including a 14% hike in emerging markets.

The jump meant a 6.6% return-on-investment, and $500-million in new contributions by Canadians.

The pension plan — now the largest in Canada — will continue to focus on private investment opportunities such as the co-investment play it made with Onex Corp. to purchase the U.K. bathroom and auto parts company Tomkins. But Mr. Denison said infrastructure assets and real estate buys “are very much in.” The pension plan is hoping to soon close its deal with Australian-based Intoll Group (formerly Macquarie Infrastructure Group), which owns a 30% stake in the 407 Express Toll Highway in Ontario, as well and additional 10% stake in the highway it is acquiring from the Spanish company Cintra. Such buys — not to mention the bevy of real estate deals the pension fund has signed over the last year — have had a significant impact on our asset mix, added Mr. Denison. “We have to focus on large transactions because we have a large fund,” he added.

The fund went on a real estate shopping spree of the last year, most recently buying up two historic properties in Washington D.C., and minority stakes in two Manhattan office towers, including the 50-story building in the Rockefeller Center complex. CPPIB has also been active in the Australian real estate market, making a $375 million investment in Colonial First State Global Asset Management, and co-investing in a new fund with the Australian-based Goodman Group. The funds buys have tallied over $1.5-billion in 2010.

CPPIB is also flexing its muscle in the private debt asset class. “We are seeing lots of need in public companies to secure debt financing. We have $2-billion invested in the last 18 months, and we will continue to be active.

Next up: expanding the fund’s presence in developing markets, he added.

The CPPIB manages the national pension plan for Canadian beneficiaries. Following the economic crisis, the federal Finance Minister Jim Flaherty, and his provincial counterparts, have been exploring a pension reform option that would see an expansion of the defined benefits under the CPP in order to increase savings adequacy in the future. Pension reform will be one of the key topics to be addressed during the federal and provincial finance ministers meeting scheduled for December 19-20. “We hope there is a set of priorities that come of their deliberations,” said Mr. Denison.

You can read CPPIB's latest press release by clicking here. The results are impressive but not surprising given how strongly global markets, especially the US market, performed during their second quarter (ending September 30th):

For the six month fiscal year-to-date period, the CPP Fund has increased by $11 billion from $127.6 billion at March 31, 2010. This increase in assets after operating expenses is comprised of $6.7 billion in investment income representing a 5.2% rate of return combined with contributions of $4.3 billion.

“All major equity market indices realized gains this quarter, in particular U.S. markets, which posted their best September results in 70 years,” said David Denison, President and CEO, CPP Investment Board.

For the five-year period ended September 30, 2010, the CPP Fund generated an annualized investment rate of return of 3.4% or $18.3 billion of investment income. For the 10-year period ended September 30, 2010, the Fund generated $44 billion of investment income reflecting an annualized rate of return of 5.5%.

September was indeed an excellent month for global equities, with the S&P 500 posting a gain of 8.8% and with 27 of 45 global markets posting double-digit returns. In other words, the global beta boost benefited all pensions that are long stocks.

CPPIB's impressive returns also had some asking, CPP v. Caisse: Who's the biggest?:

For years the Caisse de dépôt et placement du Québec has been Canada's biggest investor, managing the assets of an assortment of public and private pension funds in Quebec. When it last reported its financial results as of June 30 this year, it had assets under management totalling $135.8-billion.

But the Canada Pension Plan is taking a run at the title. The fund, whose assets are managed by the Canada Pension Plan Investment Board, reported its financial results Wednesday, disclosing its assets grew by $8.9-billion to $138.6-billion in the fiscal second quarter ended Sept. 30. Advantage CPPIB.

But before anyone puts the gold medal around CEO David Denison's neck, we have to wait to see what the Caisse reports for its 2010 returns. Unlike the CPPIB, which reports its results quarterly, the Caisse only opens its books twice a year. That means investors will know early next year where the Caisse's assets stand as of Dec. 31.

Although the CPPIB has the advantage of having new contributions pour in while it does not have to use its assets to fund pensions until 2021, smart money might bet on the Caisse to stay biggest for a while longer. If the Caisse earned the same 6.6 per cent return as the CPPIB in the quarter ended Sept. 30, its asset level would have topped $144-billion by that date.

The year is far from over, and pension funds often earn significantly different returns in the same periods, depending on where they have more and less of their assets invested. So things could change. And the CPPIB can still brag about being Canada's largest single-purpose investment fund, which means it is a single fund and not an agglomeration of various pension plans like the Caisse.

With the S&P/TSX composite index up 14 per cent since June 30 -- and U.S. markets posting their best September returns in 70 years -- it hardly matters which fund stands biggest by Dec. 31. The biggest winners will be the plan members.

And with QE2 now entering its first phase, I think pensions will keep delivering impressive returns. In fact, yesterday Bloomberg reported that assets at the New York State pension fund, the third largest in the U.S., expanded to $132.8 billion at Sept. 30 as the value of investments grew 8% on rising prices for equities, Comptroller Thomas P. DiNapoli said.

As far as "who's the biggest?", my only thought is WHO CARES??? In fact, at one point I believe size becomes an issue at these behemoth funds and they should be cut in half to keep them lean, mean and focused. I have seen many big funds lose their edge, especially when the beta tide goes into reverse. Hope this isn't going to happen to either CPPIB or the Caisse, but in this new normal, bigger isn't always better.