CPPIB, Piramal to Launch $600 Million Renewable Energy Trust

Canadian pension will contribute lion’s share and own up to 60% of venture.

The C$368.5 billion ($273.4 billion) Canada Pension Plan Investment Board (CPPIB), and India-based Piramal Enterprises Limited have signed a memorandum of understanding to co-sponsor a renewable energy-focused infrastructure investment trust that will have initial funding of $600 million.

The institutional investors said the trust would seek to acquire up to 1.5 gigawatts to 2 gigawatts of cash-generating renewable assets on a hold-to-maturity basis.

“The renewable energy sector is at an inflection point and is witnessing significant consolidation, the pace of which is likely to increase in the near future,” Piramal Group Chairman Ajay Piramal said in a release. “We believe that the timing is therefore opportune for aggregating assets in this sector given that the existing players are willing sellers in light of a constrained capital market environment— both debt and equity.”

CPPIB will contribute the lion’s share—$360 million—while Primal will pony up $90 million, and both will have the ability to add to that.

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CPPIB and Piramal Enterprises Limited will act as co-sponsors of the proposed trust, and hold up to 75% of the units with CPPIB alone holding up to a 60% stake, with Piramal’s stake at 15%. They said they will seek to raise capital from other investors for the remaining 25%. Prior to the trust’s launch, the two firms will jointly warehouse seed assets for the proposed trust, while Piramal will act as the sole investment manager and project manager for the trust.

“The foundation of this partnership is based on a shared ethos and values that leverage CPPIB’s global track record of value creation in the infrastructure space with PEL’s long-term strategy and goodwill in India,” said Piramal. “We are enthusiastic about the opportunity, as it is truly scalable, and continue to remain committed to creating value for our shareholders.”

According to CPPIB’s 2018 report on sustainable investing, the fund believes investing in renewables can provide attractive risk-adjusted returns. In December 2017, CPPIB signed agreements with Brazil’s Votorantim Energia to form a joint venture, acquiring two operational wind parks located in Northeastern Brazil through an initial contribution of C$272 million ($202.2 million) in equity.

And in January 2018, CPPIB announced plans to acquire a 6.3% stake in ReNew Power, an India-based renewable energy developer. CPPIB’s initial investment of $144 million was followed by an additional $247 million in April, bringing its total investment in ReNew to $391 million.

Tags: CPPIB, ESG, Pension, Piramal Enterprises Limited, Renewable Energy

Home > News > Research > US Corporate Pension Funding Level Rises to 91.4% in April

Research May 16, 2019

US Corporate Pension Funding Level Rises to 91.4% in April

Improvement boosted by strong investment returns during the month.

By Michael Katz

The 100 largest US corporate defined benefit pension plans’ funded status increased $29 billion to 91.4% in April from 89.7% at the end of March, spurred by strong investment gains and a rise in the benchmark corporate bond interest rates used to value pension liabilities, according to consulting firm Milliman.

April’s healthy 1.09% investment gain increased the plans’ aggregate asset value by $13 billion to $1.536 trillion at the end of April. Meanwhile, the plans’ aggregate deficit fell to $145 billion from $174 billion at the end of March, a result of an increase in the benchmark corporate bond interest rates.

“Overall, 2019 is starting out quite well, with above-expected asset returns in each of the first four months of the year,” Zorast Wadia, co-author of the Milliman 100 PFI report, which tracks the 100 largest defined benefit pension plans, said in a release. “Discount rates making their way north of 4.0% again would further add to the optimism around pension funding.”

The projected benefit obligation for the plans decreased $16 billion during April to $1.681 trillion due to a seven basis point increase in the monthly discount rate in March.

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Over the last 12 months, the cumulative asset gain for the pensions has been 5.19%, and the funded status deficit has grown by $5 billion. Milliman said the main reason the funded status deficit worsened was because of a decline in discount rates over the past 12 months. During that period, discount rates fell to 3.85% at the end of April from 4.03% at the same time last year. The funded ratio of the Milliman 100 companies slightly decreased over the past 12 months to 91.4% from 91.6%.

The report said the funded status of the surveyed plans would increase if the pensions were to earn the expected 6.6% median asset return, and if the current discount rate of 3.85% were maintained through 2020. Milliman said this would result in a projected pension deficit of $105 billion, and a funded ratio of 93.7% by the end of 2019, and a projected pension deficit of $43 billion, and a 97.4% funded ratio by the end of 2020. This is assuming 2019 and 2020 aggregate annual contributions of $50 billion.

Under an optimistic forecast with interest rates at 4.25% by the end of 2019, and 4.85% by the end of 2020, combined with annual asset gains of 10.6%, the funded ratio would climb to 101% by the end of 2019, and 117% by the end of 2020. However, under a pessimistic forecast with a discount rate of 3.45% at the end of 2019, and 2.85% by the end of 2020, and with just 2.6% annual returns, the funded ratio would fall to 87% by the end of 2019, and 80% by the end of 2020.

US Corporate Pensions Will Likely Miss Return Assumptions

Tags: Corporate Pension, Funded Ratio, Milliman, Pension

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