CPPIB’s ‘virtual’ benchmark

In an exclusive interview in the June 2012 issue of Infrastructure Investor, the Canadian pension giant’s global head of infrastructure Alain Carrier spoke of the way in which the firm’s active investment strategy is measured against a modelled passive approach.

There is an interesting legacy from the early deliberations at Canada Pension Plan Investment Board (CPPIB) about whether the pension’s infrastructure strategy – launched in 2006 – should be of the active or passive variety.  

In an exclusive keynote interview with the June 2012 issue of Infrastructure Investor, CPPIB global head of infrastructure Alain Carrier reveals that a team within the organisation manages the CPP Reference Portfolio, which shows how CPPIB’s infrastructure assets would perform if they were passively managed rather than actively (the latter approach being the one that was chosen). 

Suffice to say, it’s a benchmark that needs to be outperformed – and has indeed been outperformed to date, Carrier is quick to point out. In fiscal year 2012, CPPIB’s infrastructure portfolio posted a return of 12.8 percent, compared with 13.3 percent for fiscal year 2011. The entire portfolio’s return for 2012 – covering areas such as equities, bonds and real estate as well as infrastructure – was 6.6 percent.

However, the firm does not intend to implement a formal allocation to infrastructure. “We don’t think in terms of allocations, we don’t believe in it,” says Carrier. “It forces to you sell and pushes you to buy at the wrong time. But as the overall fund grows quite rapidly, we would like to increase our exposure to infrastructure in the context of this growing pool of capital.”

In the interview, Carrier stressed that CPPIB is a fan of complexity. “We consider ourselves reasonably conservative [in terms of sectoral approach], but we do complex deals,” Carrier claims.

“We’ve done two take-privates (Intoll and MCG) and they’re very complex. They’re difficult to do but we like them because we have control over our destiny. We seek negotiated outcomes […] rather than competing in auctions and we believe that our unique characteristics and ability to transact in size position us well for these opportunities.”

One sector that CPPIB is not attracted to presently is renewable energy. Asked why, Carrier says: “We decided against renewable energy as it’s dependent on government subsidies, has technical risk and, as such, is not in line with our strategy. The government angle has exacerbated risk over the last few years. And, in the US, the emergence of shale gas has put pressure on renewable energy.”