The Canada Pension Plan's investment team has grown steadily bigger and bolder in the past 18 months, amassing a war chest of $116.6-billion as of March 31 to pay future benefits to Canadian pensioners.
In the past year, the CPP Investment Board, which oversees the pension fund's assets, has added 100 employees. That has boosted its staff by 60 per cent to 260, and another 100 employees should be added again this year, president and CEO David Denison said in an interview.
"This will allow us more flexibility to do additional, active investing and to simultaneously handle more transactions than we are capable of doing right now. We'll also expand our geographic locations. We intend to open an office in Hong Kong and an office in London in the next 12 to 18 months," Mr. Denison said.
Much of the pension fund's bulking up has taken place as it evolves from being a passive investor in funds, stocks and bonds to using a more active investment style. This includes investing in public companies to try to enhance their value, and buying stakes in companies directly through private equity and infrastructure deals.
"That requires additional resources because that's a different activity than investing in funds, often a very time-intensive investment activity. So we need to have teams with sufficient flexibility to handle these opportunities and execute them well," Mr. Denison said.
Finding these more labour-intensive acquisitions is becoming critical for pension funds as they look for long-term assets that offer steady returns and greater resistance than public equities to economic downturns.
Such assets also offer the promise of bigger returns. In its results for fiscal 2006, released yesterday, the CPP Investment Board said its overall investment returns came in at 12.9 per cent. That was down from 15.5 per cent the year before. By contrast, returns on its private equity, real estate and infrastructure investments in the period were 35.3 per cent, 31.4 per cent and 18.4 per cent respectively.
Public equities currently make up 57.8 per cent of the plan's assets, with private equity at 7 per cent, real estate at 4.9 per cent and infrastructure at 1.9 per cent.
Last year the CPP cut its teeth on large deals including its purchase of one-third of English water utility AWG PLC for $1.05-billion, and its $350-million (U.S.) purchase of a stake in electricity transmission firm Transelec Chile SA. More, larger deals will take place in the future, with the pension fund's assets projected to swell to $250-billion (Canadian) in the next eight or nine years, Mr. Denison said.
One example already under way is the announced plan to make a bid for telecom giant BCE Inc. alongside U.S. private equity heavyweight Kohlberg Kravis Roberts & Co., and fellow Canadian pension fund, the Caisse de dépôt et placement du Québec.
"People who weren't following us closely may not have appreciated the evolution we've been going through, whereas a partner such as KKR ... fully appreciated we had those capabilities and could be a shoulder-to-shoulder partner with them," Mr. Denison said.