Head of CPP investment fund says quarter’s low return isn’t a big concern

TORONTO – There’s little sense in worrying about short-term return rates when the goal is to fund a national retirement system for the long haul, the head of the Canada Pension Plan Investment Board said Friday.

Quarterly measures are “nonsensical” when the assets are needed to last for decades, said Mark Wiseman, the fund manager’s president and CEO, after the CPPIB’s latest quarterly return lagged benchmarks.

“We’re on a pretty good path here,” Wiseman said in response to questions about his fund’s recent 1.8 per cent rate of return, which was below some benchmarks.

“To look at it in any quarter, for any pension plan, for any investor, for any portfolio, is nonsensical but especially for one like us that’s got such a long-term time horizon,” he said.

“We actually pay zero attention to this on a quarterly basis.”

Two recent surveys by Mercer consulting firm and RBC Investor and Treasury Services said Canadian pension funds earned an average of 3.3 per cent or 3.6 per cent in the most recent quarter.

The CPPIB, which manages funds on behalf of the Canada Pension Plan, has a long-term goal to earn an annual rate of four per cent after inflation. Currently, its 10-year rate of return is 6.8 per cent or 4.9 per cent after accounting for inflation.

The CPPIB reported that it had net assets of $192.8 billion at Sept. 30, up from $188.9 billion at the end of the previous quarter. The gain included $3.3 billion in net investment income and $600 million in net CPP contributions from Canadian employees and employers.

Wiseman said moving forward, the fund manager will continue to diversify its portfolio internationally, as it did in the previous quarter with the US$6 billion acquisition of half the stake in luxury U.S. retailer Neiman Marcus.

“It’s one of the largest private-equity deals that have been done in the last year… (We’re) buying an iconic brand, an iconic asset, that is very well positioned to exploit the rebound in the U.S. economy,” he said.

“We’re going to see this asset paying off in my view, getting on in the next quarter but in the next two, three, four, five years as the U.S. economy rebounds. That asset won’t show any appreciation or deprecation in the quarter. You have to look at it in the long term.”

Its recent $480 million investment in Brazilian real estate company Aliansce Shopping Centers S.A. and other residential real estate holdings shows its belief that the fund will be able to cash in as the middle class in the South American country continues to grow, said Wiseman.

Other investments during the quarter included $170 million for a 24 per cent interest in Calgary-based oil and gas producer TORC Oil and Gas Ltd. and US$125 million investment to increase its stake in the Mayflower partnership, a U.S. regional mall joint venture with Simon Property Group that was formed in 2011.

Earlier this week, Finance Minister Jim Flaherty said an expanded CPP fund is a good idea, but it should only be considered when there’s more strength in the economy and global economic risks lessen.

Several provinces, particularly Ontario, have been pushing for action on the CPP for years, but have been held back by opposition from Quebec and Alberta, as well as the soft economic outlook.

In December 2010, Ottawa and the provinces agreed to a half-way measure by creating so-called voluntary pooled registered plans.

But this year, Prince Edward Island forwarded its own plan for expanding the CPP starting in 2016, which calls for boosting maximum CPP contributions to $4,681.20 a year from $2,356.20 over a three-year period starting in 2016. It also wants to hike the maximum annual benefit to $23,400 from $12,150.

Premier Kathleen Wynne has also hinted that Ontario is prepared to expand the CPP on its own if no other provinces do not join it.

Several business lobby groups have been opposed to the idea, instead, advocating for Canadians to find alternate plans for retirement, including pooled pension plans and other forms of savings without increasing the cost to business owners.

The CPP Investment Board, one of the world’s largest pension funds, invests money not needed by the Canada Pension Plan to pay benefits for current retired contributors.

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