Canada’s largest pension fund souring on emerging markets

CPPIB chief executive officer John Graham. — Bloomberg

LONDON: Canada Pension Plan Investment Board (CPPIB), one of the largest investment firms globally, is seeing fewer opportunities to put money to work in emerging markets.

“Our emerging markets investments have evolved over time,” CPPIB chief executive officer John Graham said in a Bloomberg interview in London, adding that the firm has reduced its exposure to the region.

“The opportunity set is not as big as it once was.”

The investment firm’s target strategic portfolio weighting for emerging markets is 16% for the year, according to its latest annual report, down from 22% last year.

“When it comes to emerging markets, we want to be in the larger markets that have scale,” he said, pointing to India.

The fund, like some of Canada’s largest institutional investors, has been adjusting its strategy to neighbouring China, amid rising economic and policy risks and its deteriorating relationship with the United States and other countries.

“Geopolitics is obviously a consideration when you look at investments in any market, but we are invested in China,” he said.

“It is the second-largest economy in the world and you need to have the experience of being in such a large market if you are a global investor.”

Graham also spoke to Bloomberg Television on Wednesday, saying he doesn’t see an asset-class worldwide that’s totally free of risk for investors like his organisation.

“One theme as we look around the world and look across asset classes is there’s probably no safe harbour,” he said in the Bloomberg Television interview.

“I think you can get a little worried about almost every asset class and geography and worry about it, but, as a long-term investor, part of our thesis is to develop a long-term portfolio-construction approach.”

The pension plan ended its last fiscal year with C$632.3bil or about US$462bil of assets with an 8% return. The fund recorded a 5% loss on its real estate holdings, blaming high interest rates and work-from-home trends that have damaged the value of office properties globally.

“Our real estate’s been flat let’s say over five years, but you gotta unpick it,” Graham said.

“And we’ve certainly have taken some hits in offices, specifically in North America, but that has been offset partially by our Asia-Pacific portfolio, partially offset by logistics, by data centres, which have done reasonably well.”

The fund has been optimising its portfolio across strategies, Graham said, with a view to redeploying money into investments that can generate higher returns. — Bloomberg