CPPIB infra portfolio returns 13.3%

In its most recent annual report, the Canadian Pension Plan Investment Board, which now has C$148.2bn in assets under management, said its focus on direct investments in infrastructure reduces yearly operating costs by about C$200m.

Infrastructure investments made by the Canada Pension Plan Investment Board (CPPIB) returned 13.3 percent for the fiscal year ending 31 March 2011, according to the pension fund manager’s most recent annual report.

The 2011 returns mark a dramatic increase over those of the previous year, when CPPIB’s infrastructure portfolio posted negative returns of 6.5 percent.

Infrastructure now accounts for 6.4 percent of CPPIB’s C$148.2 billion (€107.2 billion; $153 billion) portfolio, or C$9.5 billion, while infrastructure investments at 31 March 2010 stood at C$5.8 billion.

The increase in both annual returns and total investments in infrastructure can be attributed to two major acquisitions, according to the report. In the past year, CPPIB completed the C$3.4 billion acquisition of Sydney-listed toll road operator Intoll, which gave it a 25 percent stake in the Australian Westlink M7 motorway and a 30 percent stake in Toronto's 407 Express Toll Route. CPPIB also completed the purchase of an additional 10 percent stake in the 407 highway from Cintra Infraestructuras for C$894 million.

CPPIB chair Robert Astley praised the 407 highway as “an outstanding infrastructure asset right in our backyard”. CPPIB also said it had syndicated its 40 percent stake in the 407 road, thereby “providing participation to other Canadian institutions that might not have been able to do so because of scale”. CPPIB now owns 29 percent of the road, according to the annual report.

The majority of CPPIB’s infrastructure commitments are made as direct investments. CPPIB said in the annual report that its infrastructure portfolio includes two “small” fund commitments, and that direct investments account for C$7.9 billion of the infrastructure programme.

CPPIB estimated that external management fees for a C$10 billion infrastructure portfolio would cost about C$200 million to C$250 million annually, while internal management of infrastructure at CPPIB costs only C$24 million annually, including “all allocations and compensation incentives”.

CPPIB’s infrastructure investments outperformed the total portfolio, which posted average returns of 11.9 percent. Private equity investments posted a return of 16.9 percent, and total private equity investments are valued at C$24.3 billion. CPPIB’s real estate portfolio returned 13.9 percent.