UPDATE 1-Canada fund sees buying opportunity in turbulence

Thu Aug 11, 2011 12:49pm EDT

* CPPIB says added C$5 billion to net assets in quarter

* Private equity, real estate portfolios contribute

* Announced sale of Skype stake to Microsoft in May (Recasts, adds CEO comments)

By Pav Jordan

TORONTO, Aug 11 (Reuters) - Canada Pension Plan Investment Board, one of the world's top private equity players, has switched back to buying mode amid renewed market turbulence, after stepping away from frothier markets three months ago.

CPPIB Chief Executive David Denison also told Reuters in an interview on Thursday he saw continued growth for the global economy, and said financial systems were fundamentally better prepared to handle economic shocks than they were in 2008.

"While there are heightened risks to the global economy, we do think that there will be sustainable growth, even if it won't be in a nice straight line or as robust as what we'd expected," he said.

"The financial system is in much, much better shape than it was in 2008, although there are risks. We think conditions are fundamentally different."

Deep-pocketed Canadian pension fund administrators like CPPIB became buyers of some of the world's largest private equity assets with the onset of the global economic crisis.

Investment time horizons, stretching out for decades in some cases, helped them buy assets in distress in areas ranging from infrastructure to shopping malls to telecoms.

NET ASSETS RISE

The CPPIB -- the investment arm of the nation's public pension fund -- said on Thursday the Canada Pension Plan's net assets rose to C$153.2 billion ($154.7 billion) at the end of the second quarter. That compared with C$129.7 billion in the year-ago period, boosted by investment income from infrastructure, real estate and private equity holdings.

Assets were up 5.5 percent in the second quarter from the first quarter, despite a broader equity-market retreat.

"While major equity indices were down this quarter, the fund's private equity holdings and real estate portfolio helped deliver positive results overall," Denison said.

CPPIB has consistently been a player in some of the largest private equity deals of recent years.

Together with partner Silver Lake, CPPIB announced the sale in May of a stake in Internet phone service Skype to Microsoft Corp (MSFT.O) for $8.5 billion. The group bought into the investment in September 2009, for $1.9 billion.

At the time, CPPIB said it expected to become a less active buyer because loosened credit and other sources of liquidity were driving up competition -- and prices -- for good assets.

"Well, certainly those frothy conditions are a distant memory, and now we are prepared to transact," said Denison.

In France, where banks have come under scrutiny for their high exposure to some of the European countries where debt levels are starting to look unmanageable, CPPIB will have its eye on the Paris real estate market.

"It's very hard to buy there, so if somebody wanted to sell one of those office buildings in Paris, we'd be interested," said Denison.

CPPIB expects to have net assets of C$465 billion by 2030 and more than C$1 trillion by 2050, far outstripping commitments to 17 million contributors and beneficiaries.

As of June 30, equities represented 51.8 percent of its investment portfolio, with C$55.3 billion (36.1 percent) in public equities and C$24.1 billion (15.7 percent) in private equities.

Fixed income, including bonds, money market securities and other debt and debt financing liabilities represented 31.1 percent of the portfolio, or C$47.7 billion.

Inflation-sensitive assets made up C$26.2 billion of its total assets, including real estate, infrastructure assets and inflation-linked bonds.

($1=$0.99 Canadian) (Reporting by Pav Jordan; editing by Frank McGurty and Rob Wilson)

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