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Tuesday, October 17, 2023

CPPIB Posts 1.3% Annual Return as Real Estate Investments Sustain Losses

CPPIB president and CEO John Graham

The Canada Pension Plan Investment Board posted a net return of 1.3 percent for the fiscal year that ended on 31 March, as it sold real estate assets in China and doubled down on its India property bets.

“Despite significant declines in global equity and fixed income markets during our fiscal year, our investment portfolio remained resilient, delivering stable returns while outperforming major indexes,” president and CEO John Graham said in a release.

Canada’s largest public pension fund enlarged its net assets by 5.8 percent during the year to C$570 billion (now $418.4 billion), according to its annual report.

By the end of the fiscal period, CPPIB managed C$52 billion in real estate assets, accounting for 9 percent of the fund’s portfolio, with real estate investments suffering a net loss of 1.2 percent for the 12 months after achieving a net return of 10.2 percent the previous fiscal year.

Mixed Performance

CPPIB’s real estate investments generated a five-year net return of 2.9 percent, reflecting mixed results within the portfolio and the negative impact of rising interest rates.

CPPIB recently committed another $205 million to its India logistics partnership

Industrial assets gained from increased tenant and investor demand, while retail and offices were hit by the transition towards e-commerce and the emergence of post-pandemic hybrid working trends, the fund manager said.

In Asia Pacific, CPPIB’s recent property investment activity was marked by asset disposals in China and South Korea, plus a fresh commitment in India’s industrial space.

The fund sold its interest in six warehouses in Chengdu and Wuhan to Hong Kong-based New World Development, pocketing net proceeds of C$340 million. The sheds were held under the Goodman China Logistics Partnership formed by CPPIB and the Australian industrial specialist in 2009, with the Canadian investor maintaining an 80 percent stake in the tie-up.

In Seoul, CPPIB exited a longtime investment with the sale of its 50 percent interest in Kumho Asiana Tower, chalking up net proceeds of C$181 million. The fund had teamed up with Singapore’s GIC to buy the landmark office building for KRW 418 billion ($380 million) in 2018.

CPPIB pledged $205 million to Indian logistics developer IndoSpace’s fourth development fund after previously committing $500 million to the 2017-vintage IndoSpace Core joint venture, owner of the largest portfolio of stabilised modern logistics assets in India.

The fund’s overall showing remained good enough to reach a 10-year annualised net return of 10 percent, a milestone that CPPIB’s Graham attributed to an active management strategy at Canada’s largest pension fund manager.

Staying the China Course

The leaders of some of the largest pension funds in British Columbia and Ontario told a Canadian parliamentary committee earlier this month that they had paused investment in mainland China, but CPPIB indicated reluctance to walk back its bets on the world’s second largest economy.

“Exposing the fund to Chinese markets gives us access to one of the world’s largest and fastest-growing economies,” Michel Leduc, senior managing director and global head of public and corporate affairs for CPPIB, told the committee.

Leduc said that real estate, particularly the multi-family sector, is one of CPPIB’s top three sectors in China after consumer discretionary and logistics.

“We recognise that any investment in China needs to be handled with care, sophistication and an acute understanding of the current political and geopolitical environment,” he said, noting that there were tools and systems in place to assess and monitor both active and passive holdings of CPPIB in China and other countries as well.

Michael Maren
Michael Maren
Former marine biologist who likes to spend as much time in the tropics as possible, due to a horrible time I once had in Alaska. Brrrr.

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