CPPIB's total exposure to the US market grew to 47% of its C$714bil or about US$514bil portfolio as of the end of March. — Bloomberg
TORONTO: Currency effects have caused US assets to surge to nearly half of Canada’s national pension fund, as its managers face pressure from within the country’s business community to invest more domestically.
Canada Pension Plan Investment Board’s (CPPIB) total exposure to the US market grew to 47% of its C$714bil or about US$514bil portfolio as of the end of March, according to its annual report released Wednesday. That’s up from 36% two years earlier.
The country’s largest public pension manager posted a return of 9.3% for the fiscal year ended March 31, boosted by double-digit gains in its investments in credit, private equity and stocks.
The year ended two days before US President Donald Trump unveiled his new global tariff policy, which set off turmoil in global markets for days.
Trade-related challenges will “negatively impact global growth”, chief executive officer John Graham said in an interview.
But the fund doesn’t plan to make “sudden movements or sudden changes”, given that the portfolio was built to withstand a range of macroeconomic conditions, he said.
For years, Canada’s biggest pensions, known as the Maple Eight, have focused on international diversification in the pursuit of better returns.
But some people in the capital markets believe they have gone too far: Last year, about 100 Canadian business leaders, including Montreal-based asset management firm Letko Brosseau, signed an open letter urging the finance minister to change the rules governing pension funds “to encourage them to invest in Canada”.
The pension plan is hoping to be more active in the country over the next couple of years and is looking at opportunities around pipelines, oil and gas and renewables, Graham said.
The Toronto-based pension plan grew its US exposure last year “almost entirely” because of the strong US dollar, Graham said.
“And interestingly, you had to proactively prevent the portfolio from getting too overexposed into the United States over the past few years because it’s just performed so well,” he said, adding that the current allocation is “about right”.
US investments earned compound annual returns of 9.6% over the past five fiscal years, compared with 5.8% gains for Canadian holdings and 6.6% for European ones. The fund’s US portfolio includes Ascend Learning, which provides online educational content, and marine terminal operator Ports America. In its active equities group, 41% of assets are US-based.
CPPIB’s credit holdings gained 14.4% during the fiscal year, while private equities and stocks returned 11.8% and 10.6%, respectively.
Public equities, especially in the United States and China, delivered gains despite geopolitical and trade-related headwinds in the fourth quarter, the fund said.
The fund has reduced exposure to emerging markets over the past few years and created a new group to oversee some mature assets and potentially incubate new strategies, according to people with knowledge of the matter.
In late 2023, the pension plan moved five of its companies into a new platform called Integrated Strategies Group. Four of the companies in it are tied to insurance and were previously under CPPIB’s private-equity group.
Before the shift, the pension manager tried to sell some of the companies – including life insurer Wilton RE Ltd and property and casualty insurer Ascot Group Ltd – but didn’t get the prices it asked for, the people said.
The fund transferred C$24.5bil of net assets to the new platform in April last year, around 75% of which came from the private-equity arm, according to the annual report.
The group sits within the office of the chief investment officer and was created to “help us with assets that we think have some cross-departmental or cross-organisation benefit,” the chief executive said.
The annual report also hints at other changes within the firm’s strategy.
The number of full-time employees working in the private-equity group dropped to 157 from 192 two years ago.
That group has also seen leadership changes. In August, the fund announced the promotion of Caitlin Gubbels to lead it, replacing Suyi Kim.
The appointment of Gubbels, who previously led private-equity fund investments, was seen by some as a sign that CPPIB is shifting its focus toward partnerships with external fund managers. — Bloomberg
