CPPIB Pursues US Commercial Real Estate

(February 10, 2011) — The head of one of Canada’s most active global investors has revealed that it is eyeing US commercial property.

David Denison, chief executive of the Canada Pension Plan Investment Board (CPPIB), which oversees $140 billion in assets for Canada’s national pension plan, told the Wall Street Journal that he has witnessed a spike in the availability of commercial real estate in the US, and that he is expecting that trend to continue.

Largely due to a number of major purchases in recent months, the fund reported its infrastructure holdings have ballooned over the past nine months to become 6.8% of the fund’s total assets with a total value of $9.5 billion, up from 4.6% of assets worth $5.8 billion as of last March 31. Meanwhile, real estate assets have grown to $9.2-billion in value representing 6.6% of the fund’s holdings, an increase from $7 billion or 5.5% of total assets last year.

The CPPIB is one of the country’s most active investors. In September, Onex, Canada’s largest private-equity firm, and the CPPIB announced that they completed the acquisition of Tomkins, a UK-based manufacturer serving the general industrial, automotive and construction markets around the globe. The total value of the deal came to $5 billion — including equity and debt — making it the largest private-equity deal of the year. The deal surpassed Blackstone’s $4.8 billion acquisition of Dynegy, announced in August. The fund additionally spent $3.4-billion to buy privately owned Intoll Group of Australia, which held a 30% stake in the 407 toll highway north of Toronto. CPPIB also bought a further 10% stake in 407 highway from Spain’s Cintra Infraestructuras S.A., giving the CPPIB a 40% interest in the toll road.

“Consistent with our investment thesis for our proposed acquisition of Intoll Group, we believe 407 ETR is an attractive infrastructure asset and is a strategic fit with CPPIB’s portfolio and long-term investment mandate,” said André Bourbonnais, senior vice-president of private investments at CPPIB in a statement. “As an essential toll road in the Greater Toronto area, Highway 407 ETR is situated strategically to ease traffic congestion and to benefit from future urban growth in Toronto.”

Fueled by an increase in global stock markets, according to the CPPIB, the fund reported a 3% return on its assets — an increase of 1% from the previous quarter. “It’s very much strategic. We think infrastructure assets and real estate assets make compelling good sense for a long-horizon fund such as the CPP and we’ve been acquiring assets on a disciplined basis over the past four or five years in each category,” Denison said, according to the Globe and Mail.

The Alberta Investment Management Corporation (AIMCo), the corporation created to manage Alberta’s pension and sovereign wealth capital, has also embraced infrastructure, mirroring the move by other big pension funds to invest directly in infrastructure assets as opposed to relying on third-party funds. Earlier last month, in an effort to locate stable long-term investment vehicles with decent yields, the fund manager agreed to buy a 50% stake in Autopista Central, a motorway in Santiago, Chile. AimCo’s de Bever, often regarded as the king of infrastructure investment, told the Financial Times that such deals made sense because some infrastructure funds still carry 2-and-20 style performance fees (2% of assets and 20% of profits), noting that pensions have thus moved away from investing through third-party investing vehicles largely because of the fees involved.