Monday, October 24, 2011

PSP Investment's Annual Public Meeting 2011

On Thursday October 20th, PSP Investments (PSP) held its Annual Public Meeting 2011. You can download the Annual Public Meeting presentation for FY2011 and listen to the audio in English or if you prefer, the bilingual version.

Paul Cantor, the Chair of the Board spoke first. He discussed the shift into private markets and the Auditor General of Canada Special Examination Report. Paul was satisfied with the report and said that PSP has the "best nomination process among public and private funds." He commended PSP's past and present board of directors, making a special mention of Bob Baldwin who recently retired from the Board. He also praised PSP's senior management and PSP's 350 employees and PSP's "risk management." Finally, he announced he will be stepping down as Chair of the Board at the end of the current fiscal year (March 31st, 2012).

PSP's President and CEO, Gordon Fyfe, then spoke and went over PSP's Policy Portfolio. The strategy is similar to other large Canadian public funds, ie. shift assets out of public markets and into private markets, as well as focus on managing assets internally as opposed to external funds. PSP introduced a new asset class called "Renewable Resources," where it invests in properties that harvest timber like the Timberwest deal which was done with bcIMC, as well as properties that harvest agricultural products (probably farmland).

In private equity, Gordon spoke of direct investments, noting the investment in Telesat and stating that PSP recorded its best ever one-year return (21%) in private equity during FY 2011. He also stated that PSP sold a portion of the private equity fund portfolio (mega buyout), but provided few details to who and at what price. My sources tell me it was to CPPIB, which they co-invested along with Apax partners to acquire Kinetics Concepts, at a significant discount. No details were provided on how much of the stellar results in private equity during FY 2011 were attributable to direct deals and how much was due to the sale of their fund stakes.

In real estate, Gordon noted direct investments in Revera, distressed debt strategies, and investments in emerging markets like Brazil. He also noted several co-investments in multi-family and industrial properties were made in the US, in properties in New York City and Washington D.C., but provided few details. As I stated in my previous comment, real estate isn't a 'sacred chalice'.

In infrastructure, Gordon noted that investments were made in five terminal ports in Australia, in a Norwegian pipeline system, and Hydro-electric assets in Canada, but again few details were provided on these investments.

Noting the Auditor General's special sham report, Gordon stated he was pleased with the conclusions, namely that PSP's assets are safeguarded and controlled, resources are managed economically and effectively and efficiently, and operations carried out effectively. He also cited the report's key observations: key elements of a strong governance framework, PSP continues to develop risk measurement and management capabilities in line with industry, and compensation practices align behaviors while maintaining competitiveness.

Gordon ended by stating that in the first six months of FY2012, the Fund is down 5% mainly due to weakness in global equity markets but this doesn't take into consideration private market investments which are valued at the end of the fiscal year. Given the lags in private market valuations, there should be some positive contributions to the Fund's overall performance. Moreover, if some resolution comes out of Europe, global equity markets should perform well in the next few months, benefiting PSP's FY 2012 results.

Once again, the media did not cover PSP's Annual Public Meeting, which goes to show you how much interest mainstream media has in properly covering all large Canadian public pension funds, not just the Caisse and Ontario Teachers. On a personal level, would like to wish Paul Cantor and Bob Baldwin all the best. Have openly criticized many of PSP's decisions, but have also praised others and know that it isn't easy governing a large fund during these turbulent times. Paul and Bob should be commended for navigating through some volatile times at PSP, addressing thorny internal issues while dealing with difficult external market conditions.

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