Investments in core assets and emerging markets helped the Canada Pension Plan Investment Board’s infrastructure portfolio outperform other real asset classes for the second year in a row by generating a 14 percent return, according to the pension fund’s annual report.
The C$392 billion ($293.1 billion; €261.7 billion) pension plan invested C$1.9 billion in infrastructure assets over fiscal year 2019, which ended on 31 May, according to the report.
The pension fund said other investors have responded to “downward pressure on returns” by seeking “higher risk infrastructure investments”. But CPPIB said its strategy will stay the same, targeting sectors such as utilities, transportation, telecoms and energy, mostly in OECD countries.
CPPIB noted its C$33.3 billion infrastructure portfolio’s growing exposure to emerging markets, which is now at 20.7 percent, primarily in Latin America and India. It acquired a 29 percent stake in Mexican toll road Pacifico Sur for C$185 million and made an investment in India, acquiring a 30 percent stake in IndInfravit Trust, which focuses on the country’s roads sector, for C$200 million.
Last year, the pension participated in a consortium that invested in the A$9.26 billion WestConnex Australia toll road project, investing approximately A$1.8 billion.
Those investments made up a portion of the C$1.9 billion of capital CPPIB put to work last year. The infrastructure portfolio increased by 16.4 percent, up from C$28.6 billion in 2018, partly due to C$4.9 billion in valuation increases, the pension fund said, “driven by strong portfolio performance and market pricing”, It now accounts for 8.5 percent of the pension’s overall portfolio and 35.4 percent of the real assets portfolio, which it comprises, along with real estate, energy and resources, and power and renewables.
CPPIB’s C$94.1 billion real assets portfolio now includes 19 direct infrastructure investments, which for the second year have led the other real asset classes. Over the past fiscal year, real estate generated a net 6.4 percent return and other real assets combined generated 0.0 percent after falling to -9.8 percent in 2018.
In an interview last year with Infrastructure Investor, Scott Lawrence, who heads CPPIB’s infrastructure group, said the pension fund expects the infrastructure portfolio to be “north” of C$40 billion within the next five years.
The pension fund had not responded to a request for comment at the time of publication.