June 26, 2001
The CPP Investment Board will commit up to 10 percent of its assets to private market investments over the next five years to enhance long-term returns above those likely to be earned from publicly traded equities, it was announced today.
At March 31, 2001, the CPP Investment Board had $7.2 billion invested solely in publicly traded equities, with approximately 70 percent invested in funds based on the TSE 300 Index and 30 percent invested in U.S. and international index funds.
Private equity investments will be made in pooled funds that provide venture capital to early-stage companies, investment firms that provide expansion capital to established companies, and merchant banks involved in buyouts and acquisitions that result in stronger and more profitable corporations.
We will commit up to $1.8 billion to private market investments, to be drawn down over the next five years, and will make further annual commitments as appropriate,” commented CPP Investment Board President and Chief Executive Officer John A. MacNaughton. “Our private market investments will eventually include ownership interests in real estate, infrastructure projects, oil and gas properties, electrical power projects, and natural resources.” Mark Weisdorf, Vice President of Private Market Investments, toured Canada this month to visit with specialists in private market investments. “Our first priority is to identify investment firms with which we can form long-term relationships,” he said. Over the next year, the CPP Investment Board anticipates forming partnerships with as many as 15 private market specialists in Canada, the United States and Europe to achieve diversification by industry, geographic market, style of investing, and stage of maturity of investee companies.
We will select experienced and independent fund managers who will utilize their expertise to identify and add value to investments that should over time meet our performance expectations and those of other like-minded investors,” said Mr. Weisdorf, who has 18 years investment and merchant banking experience with three firms and served as Deputy CEO at HSBC Securities (Canada) Inc. prior to joining the CPP Investment Board. He explained that the CPP Investment Board is a patient long-term investor that can wait for private market investments to generate attractive returns. “Lower returns and even losses are possible in the initial years, with gains appearing later.
This is not surprising for young companies starting out, or mature businesses going through fundamental change to generate future growth.” He continued: “Structured appropriately, private equities offer superior returns relative to public equities and fixed-income securities and provide some risk diversification to our total portfolio. Our target for these investments is to exceed inflation by 8 percent annually over a 10-year period. With inflation included, the nominal return target is 10 to 11 percent annually.
“ Mr. Weisdorf said that real estate and infrastructure investments will be considered later in fiscal 2002 and direct investments in energy and natural resources during fiscal 2003. Publicly traded securities, in the form of Canadian and foreign stock index funds will remain the core of the CPP Investment Board’s strategy. Over time, other active investment strategies will be considered. The CPP Investment Board is a crown corporation created by an Act of Parliament in December 1997. It invests funds not needed by the Canada Pension Plan to pay current pensions. Cash flows are currently invested only in equities to balance the bond portfolio owned by the Canada Pension Plan. By increasing the long-term value of funds, the CPP Investment Board will help the Plan to keep its pension promise to Canadians. The CPP Investment Board is governed and managed independently of the Canada Pension Plan and at arm’s length from governments.
For further information contact:
Vice President Private Market Investments