Canada's CPPIB sees more U.S. property investments

TORONTO (Reuters) - CPPIB plans to invest more in U.S. real estate after major purchases in Manhattan and Washington this year, said the head of Canada’s top pension fund administrator, which posted a 7 percent rise in managed assets on Wednesday.

David Denison, chief executive of Canada Pension Plan Investment Board, told Reuters that opportunities still existed in the U.S. property market, particularly in New York, Washington and Los Angeles.

Denison said CPPIB’s deep pockets and investment horizons stretching out up to 40 years give the fund an edge in a real estate market with tough debt and mortgage financing conditions.

“That requires people to put more equity into the capital structures of these real estate acquisitions and that still means that there is a lot of participants who can’t do that ... their business models doesn’t allow them to do that.”

Rising global equity markets, especially in the United States, drove the rise in assets under management in the second quarter ended September 30. The rise brought the value of its portfolio to C$138.6 billion ($138 billion), including C$500 million in contributions and C$8.4 billion in investment returns.

The pension fund administrator sees assets under management doubling over the next decade.

“All major equity market indices realized gains this quarter, in particular U.S. markets, which posted their best September results in 70 years,” said David Denison, chief executive of CPPIB.

CPPIB entered a joint venture investment with Vornado Realty Trust VNO.N in October to acquire a 45 percent stake in two prime office properties in Washington D.C., including 1299 Pennsylvania Avenue (the Warner Building) and 1101 17th Street NW.

“We’re starting to see very good buildings, the Washington ones, the two in Manhattan ... and a number that are under consideration right now that we think are very good buildings, priced very well, and we will continue to be a buyer in the U.S. real estate market as long as we feel those two conditions persist,” Denison said in phone interview.

CPPIB is vying for a top spot among Canadian pension fund managers, which emerged from recession bigger and stronger than before, helped by long-term investment horizons that allowed them to ride out much of the market plunge in 2009.

It participated in some of the largest global private equity deals of 2009 and in the current year.

“We think there will be a period still where there are relatively few investors wanting to do the kinds of transactions that are of interest to us.”

Denison also said CPPIB has explored opportunities for investing in the agriculture and food sectors, but he acknowledged the sector presented risks.

“It’s a complicated area to invest in,” he said, citing climate change as one risk factor among several. “That’s a significant issue if one is making an investment as we would do, over a 20, 30, 40 year time horizon.”

Equities represented 53.2 percent of CPPIB’s investment portfolio as of September 30, valued at C$73.8 billion. Of those, 38.6 percent were public equities, or C$53.5 billion, and 14.6 percent were private equities, valued at C$20.3 billion.

Fixed income, including bonds, money market securities and other debt and debt financing liabilities represented 32.7 percent of the portfolio at C$45.3 billion.

Inflation-sensitive assets - real estate valued at C$9.1 billion, infrastructure assets valued at C$6.2 billion and inflation-linked bonds valued at C$4.3 billion - made up the remaining 14.1 percent of the portfolio.

($1=$1.00 Canadian)

Reporting by Pav Jordan; Editing by Frank McGurty