CPPIB CEO has 'significant appetite' for fixed income; comfortable with energy exposure

TORONTO (Reuters) - The Canada Pension Plan Investment Board (CPPIB) has “significant appetite” for fixed income investments to help further diversify its portfolio and reduce risk, its CEO said on Tuesday, adding that the fund remains comfortable with its energy exposure.

“One of the big debates in portfolio construction right now is, ‘is fixed income a useful diversifier of the portfolio, when you’ve got interest rates close to zero and negative-yielding bonds?’” Mark Machin told Reuters after Canada’s biggest public pension fund reported a 3.1% nominal rate of return for fiscal 2020 versus 8.9% in 2019.

With the “significant risk event” of the coronavirus pandemic, the fund has appetite for more bond investments to “nudge the risk down a bit,” he said. But that would come as tweaks to the portfolio rather than wholesale changes, Machin added.

CPPIB’s energy holdings fared the worst, posting -23.4% returns during the year, compared with -0.6% in 2019, hit by the global slump in oil prices.

But Machin said the fund remains comfortable with its energy exposure, as demand returns while “there seems to be some more rationality in production.”

CPPIB, whose net assets rose 4.5% to C$409.6 billion ($297 billion) at the end of fiscal 2020, has focused on diversification for many years to become one of the world’s biggest investors in infrastructure, real estate and private equity.

That helped it post a 12.6% return for the 2019 calendar year. Much of the drop in returns for the fiscal year ended March came in the fourth quarter due to broad equity market declines, it said.

CPPIB, the investment arm of the pension fund, contributed an annualized C$123.4 billion in net income to the pension plan after costs over a five-year period. The fiscal 2020 contribution was C$12.1 billion.

($1 = 1.3786 Canadian dollars)

Reporting By Nichola Saminather in Toronto and Noor Zainab Hussain in Bengaluru; Editing by Gareth Jones, Nick Zieminski and Dan Grebler