Expect lower investment returns around the world, says CPPIB chief

Expect lower investment returns around the world, says CPPIB chief


The head of the Canada Pension Plan Investment Board said Thursday that investors are likely to see weaker returns in the future amid a “pretty sluggish period” that has struck most global economies.

“I think we’re going to see much lower return on assets going forward than we have since the global financial crisis and the recovery,” said Mark Machin, president and chief executive officer of the CPPIB, in an interview with the Financial Post. “So I would see returns coming down around the world.”

The CPPIB reported on Thursday net assets of $368.5 billion for its quarter ended Dec. 31, up $200 million from the end of the previous quarter. The pension fund also said its investment portfolio posted a net return of 1.1 per cent for the three months, which included the period of volatility that struck the markets in late 2018.

“It was a solid quarter given a pretty weak market environment,” Machin said. “The fact that our portfolio held up pretty well during that shows that diversification works.”

The pension fund also reported its investment portfolio notched 10-year and five-year annualized returns of 10 per cent and 11 per cent, net of all its costs.

CPPIB announced a number of investments during the quarter, including paying $670 million with a partner for a controlling stake in a hydro-power company in Brazil, which was one of the few countries “desynchronized” from the global economic slowdown, Machin said.

The complex situations involving Canada, China and the United States are contributing to those growth issues, Machin said, although he remained optimistic about a resolution.

“It’s a very significant drag on global growth right now,” he added. “Because uncertainty holds people back from making investments in their businesses, and may hold people back from hiring people, and it holds people back from taking risk in their business.”

CPPIB invests the funds of the Canada Pension Plan, and the board began receiving additional CPP contributions in January, when measures to bolster the plan kicked in.

The pension fund also issued its first Euro-dominated green bond last month, a €1-billion sale of 10-year fixed-rate notes. CPPIB said the issuance “will enable us to invest further in eligible assets such as renewables, water, and real estate projects, and to diversify the Fund’s investor base.”

January’s issuance follows CPPIB’s first-ever green-bond sale last June, which the board said was a first for pension funds.

“I would imagine we’ll continue to use that market,” Machin said Thursday.

CPPIB signed an agreement during its third quarter, alongside the Ontario Teachers’ Pension Plan, to buy 49 per cent of a 309-kilometre toll road in Mexico for an initial $314 million. The fund said there is also the possibility of a second investment of up to $218 million in the road.

CPPIB already owns 40 per cent of the privately-leased section of Highway 407, another toll road that runs 108 kilometres from Burlington, Ont. in the west to Pickering, Ont. in the east.

SNC-Lavalin Group Inc. and a subsidiary of Spanish infrastructure company Ferrovial S.A. own 16.77 per cent and 42.23 per cent, respectively.

However, SNC-Lavalin said last August that it had hired CIBC Capital Markets and RBC Capital Markets as financial advisors to help the company with a possible sale of 6.76 per cent of the 407, which would reduce its stake to around 10 per cent.

Since then, shares of SNC-Lavalin have dropped more than 35 per cent, with the company recently cutting its earnings forecast and being pulled into a political firestorm tied to the company’s lingering corruption and fraud charges.

Machin declined to comment Thursday on whether or not CPPIB would be interested in the stake in the 407 floated by SNC-Lavalin.

“We’re happy investors in the 407,” Machin said.

• Email:[email protected]| Twitter:GeoffZochodne

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