TORONTO (CP) — The Canada Pension Plan Investment Board will work to diversify the CPP’s investments into real estate and other opportunities as it takes over management of the plan’s $36.4-billion fixed-income portfolio this year.
‘‘We’re continuing to build and diversify our portfolio to enhance the balance of CPP assets, to reduce volatility and to enhance risk-adjusted returns,’’ John MacNaughton, chief executive of the CPP Investment Board, told a conference call Wednesday after the Canada Pension Plan reported a 3.1 per cent return on assets in its third quarter ended Dec. 31 — reversing losses earlier in the fiscal year.
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The plan’s $1.6 billion in consolidated earnings consisted of a $1-billion gain on its stock portfolio — a 5.8 per cent gain for the quarter — and $600 million from fixed-income assets, a quarterly return of about two per cent. Following a $1.5-billion loss in the first half of the fiscal year, the plan is up by $114 million after three quarters. That compares with $2.4 billion the plan earned in the corresponding 2001 period.
The equities portion of the plan — $18.4 billion or 34 per cent of total assets at Dec. 31 — is managed by the CPP Investment Board.
The fixed-income portfolio — $31.8 billion in government bonds and $4.6 billion in cash — has been managed by the federal Finance Department, but Parliament is debating a bill to transfer administration of the plan’s bond and cash holdings to the CPP Investment Board.
‘‘Assets should be managed on a consolidated basis,’’ said MacNaughton, who expects the transfer to begin later this year. ‘‘The cash reserve of $4.6 billion — that’s too much money to have invested at Treasury bill rates. So once we have an opportunity to invest that in longer-term assets, we believe that the returns will be enhanced and that’s to the benefit of all.’’
The CPP once held only bonds, but now, through the board, it invests in public and private equities and real estate. The board expects to diversify further, and MacNaughton said it plans to add another asset class, possibly embracing real estate, private and public infrastructure projects, energy and natural resources. Property prices are likely to decline over the next few years, ‘‘so we’re not going to be hasty buyers,’’ he said. ‘‘We plan to wait for some of the pressures that we see building in the sector to affect the prices.’’