canada | Pension360

Canada Pension Plan Invests $325 Million in U.S. Cancer Treatment Provider

The Canada Pension Plan has invested $325 in 21^st Century Oncology Holdings Inc., a cancer care service provider. The details, from Reuters:

Canada Pension Plan Investment Board (CPPIB), the investment arm of Canada’s national pension plan, said on Friday it has invested $325 million in privately held radiation oncology services provider 21st Century Oncology Holdings Inc through purchases of convertible preferred shares.

Fort Myers, Florida-based 21st Century operates the world’s largest integrated network of cancer treatment centers and affiliated physician practices. It has 179 treatment centers in the United States and in six Latin America countries.

The investment will give CPPIB the right to nominate two directors to 21st Century’s board.

An active global dealmaker, CPPIB manages net assets of C$226.8 billion on behalf of the Canada Pension Plan.

More details on 21st Century Oncology, from BusinessWeek:

21st Century Oncology Holdings, Inc., together with its subsidiaries, operates as a physician-led provider of integrated cancer care services.

As of February 19, 2014, 21st Century Oncology Holdings, Inc. operated 179 treatment centers primarily under the 21st Century Oncology brand, including 145 centers located in 16 states of the United States; and 34 centers located in 6 countries in Latin America. It was formerly known as Radiation Therapy Services Holdings, Inc. and changed its name to 21st Century Oncology Holdings, Inc. in December 2013. The company was founded in 1983 and is based in Fort Myers, Florida.

Photo by hobvias sudoneighm via Flickr CC License

CalPERS To Measure, Disclose Carbon Footprint of Portfolio

CalPERS and several other institutional investors signed the Montreal Carbon Pledge yesterday. The pledge mandates that the investors measure and publicly report the carbon footprint of their entire investment portfolio.

Strong Global Equities Performance Drives Ontario Pension Return

The Ontario Public Service Pension Plan (PSPP) returned 12.5 percent overall in 2013. But a new report from the Ontario Pension Board, which handles investments for the fund, gives more details on the performance of individual asset classes.

Strong global equities performance (37 percent return) drove the fund’s returns in 2013. Reported by Pensions & Investments:

In the pension fund’s annual report released Thursday by the Ontario Pension Board, which administers the defined benefit plan, global equities returned 37% last year, while Canadian equities returned 18%, compared with 35.9% for the MSCI World (Canadian dollar) and 13% for the S&P/TSX Composite indexes.

Real estate returned 12.9% vs. its custom benchmark’s 9.7% return; infrastructure, 12% vs. 0.9% for its custom benchmark; emerging markets equities, 5% vs. the MSCI Emerging Markets (Canadian dollar) index’s 4.3%; and Canadian fixed income, 1.8% vs. -1.2% for the DEX Universe Bond index.

Private equity, which returned 17.8%, was the only asset class to underperform its benchmark, which was 30.2%.

The pension fund’s asset allocation as of Dec. 31 was 28.2% fixed income, 23.7% developed markets equities, 15.5% emerging markets equities, 14% real estate, 8% cash and short-term investments, 7.6% Canadian equities, 2.5% infrastructure and 0.5% private equity.

The plan improved its funded status from 94 percent to 96 percent, according to the report.

The fund handles $18.9 billion of assets.

Quebec Stays Course on Pension Reforms In Face of Mounting Protests

Protestors are flooding Montréal streets in opposition of Quebec’s Bill 3, a measure that would freeze COLAs for retirees and increase employee contributions.

But the government isn’t willing to reverse course on their plan to lower the costs of the province’s pension system. Bill 3 is expected to pass within a month. From the Montreal Gazette:

The provincial government won’t budge on the proposed reform of municipal pension plans, Municipal Affairs Minister Pierre Moreau said Tuesday, three days after the largest protest yet against Bill 3 was held in Montreal.

“We are not in a bargaining situation,” he said. “The government and experts have said, in a report that was welcomed by everyone in the National Assembly, that there was an urgency to act to save those pensions. That’s what we’ve done.”

The minister said the government is done consulting interested parties, including union leaders, retiree representatives and the Union des municipalités du Québec, and has moved on to drafting the bill. Union leaders called the hearings a “farce.”

[…]

The government won’t necessarily wait for actuarial reports on the health of the pension plans to be published next month before passing the bill, Moreau added.

“Having the numbers doesn’t change anything,” he said. “It doesn’t change anything for the pensions that are totally under-financed.

“For example, even if I don’t know your weight, if you’re overweight I know you’re in precarious health.”

Bill 3 is part of a larger austerity plan to cut government costs and pay down a deficit of nearly $4 billion.

Canada Pension Fund Begins $1.3 Billion Spending Spree on Paris Real Estate

The Ontario Municipal Employees Retirement System (OMERS) has made its first investment in what’s likely to be a line of many in Paris real estate.

The first purchase: a $337 million office building in central Paris. The pension fund says it plans to invest another $850 million in Paris real estate over the next three years.

Reported by the Financial Times:

Oxford Properties, the real estate arm of giant Ontario fund Omers, has bought a 237,000 sq ft building in Rue Blanche, central Paris, from the Carlyle Group for €263m.

Its move into Paris is the fund’s first step into continental European offices.

Michel Vauclair, an Oxford Properties senior vice-president, said it aimed to build up its Paris portfolio to €1bn in the next three years.

It will focus on “assets where we can drive value through active asset management . . . and where we believe that current values do not reflect future market improvements”, Mr Vauclair said.

Until recently the Paris property market has been sluggish, partly as a result of the country’s economic weakness and political uncertainty. But Mr Vauclair said that Oxford Properties sees “the prospect for significant growth to come through infrastructure improvements and a broader economic recovery”.

OMERS isn’t the only organization buying up Paris property. In fact, many foreign investors are flocking to the city. From the Financial Times:

Janet Stewart-Goatly, a senior capital markets director at property advisers CBRE, said the Paris market had seen a 60 per cent increase in transactions year-on-year as foreign investors flood into the market.

“If you’re looking to build up your international portfolio, you can’t ignore Paris,” she said. “There is a massive weight of capital seeking to invest.”

As a result yields are about 4 per cent for Paris’s central business district and 5.5 per cent in the La Defense business cluster, she added.

La Defense had a 12 per cent vacancy rate last year – partly as a result of a handful of large companies relocating to the Paris suburbs – but vacancies are now falling as more businesses take up space, Ms Stewart-Goatly said.

OMERS says it is targeting Paris due to an improving economy coupled with the likely leveling-off of its high vacancy rate, which the fund says is “temporary”.

Canada Pension Fund Gets In On Alibaba IPO, To The Tune of $160 Million

There’s been a huge demand from large investors to get in on the initial public offering of Alibaba Group Holding Ltd., the Chinese e-commerce giant that conducts nearly 80 percent of China’s online commerce.

But the Canada Pension Plan Investment Board (CPPIB) – the entity that invests assets for the Canada Pension Plan – isn’t one of them. That’s because the CPPIB revealed today that it invested in Alibaba years ago.

Reported by Bloomberg:

Canada Pension Plan Investment Board said it has invested $160 million in Alibaba Group Holding Ltd. (BABA), the Chinese e-commerce company that plans to go public tomorrow.

The country’s largest pension fund manager made two direct investments in Alibaba in 2011 and 2012 for a total of $136 million, Linda Sims, a Canada Pension spokeswoman, said in an e-mail.

The pension plan has another $24 million indirect investment through a private-equity fund managed by Silver Lake Management LLC, she said.

What’s the investment worth now? The CPPIB declined to disclose the figures, saying that they won’t release that information until they sell their stake.

But according to some back-of-the-envelope calculations, the initial investment could have ballooned by up to 500 percent. From Bloomberg:

At the time of the initial investment in 2011, the Hangzhou-based Alibaba was valued at about $32 billion, people with knowledge of the matter said at the time. In May 2012, when Yahoo! Inc. sold part of its stake in Alibaba the transaction valued the company at about $35 billion.

Alibaba is expected to price its IPO at between $66 and $68 a share when it debuts on the New York Stock Exchange Friday, valuing the company at about $168 billion.

The estimated five-fold increase in Alibaba’s share price would make Canada Pension’s direct investment worth about $680 million based on the time the investments were made.

The fund manager’s indirect investment in the company is harder to calculate because the fund, Silver Lake Partners III LP, is invested in more than just Alibaba.

Alibaba’s IPO may be the world’s largest ever. The company conducts more transactions than Amazon and EBay – combined.

Winnipeg’s Pension Reserves Quickly Depleting; Budget Pains Likely Coming

For years, Winnipeg has had a “rainy day fund”, worth hundreds of millions of dollars, that was used to pay pension expenses. It was advantageous for the city because the general budget could be insulated from rising pension costs.

But that may not last much longer. The rainy day fund is drying up, and pension costs are still rising: the city expects to use $16 million to pay down pension expenses in 2014, and for the first time that money might have to come straight from the general budget.

From the Winnipeg Sun:

The [rainy day] fund has dipped from $130 million in 2006 to $60 million in 2012.

“Once the fund is dry the city will likely be left scrambling to find $16 million (or more) each year to fulfil its pension obligations,” said CTF prairie director Colin Craig. “That’s the equivalent of about a 3% property tax increase each year.”

Craig said the city has indicated it withdrew $16.3 million in 2013 and expects to withdraw about the same in 2014.

“Candidates are currently having trouble finding $20 million annually for the proposed rapid transit expansion,” continued Craig. “Well, surprise! They’re likely going to have no choice but to start finding $16 million each year to pay for the city’s pension plan too. It’s pretty clear the taxpayer can’t afford everything that council candidates are promising.”

The city’s 2013 annual report states, “Until recently the Winnipeg Civic Employees’ Benefits Program’s special-purpose reserves have been used to subsidize the cost of benefits. … the Program’s reserve position is currently insufficient to continue to subsidize the cost of benefits on a sustainable basis.”

If the fund contained $60 million in 2012, it will likely contain less than $28 million when 2015 begins. By the time 2016 rolls around, the general budget will become exposed to the city’s pension expenses.

Canada Pension Funds Invest $700 Million in XPO Logistics

Canada’s Public Sector Pension Investment Board (PSP Investments) and the Ontario Teachers’ Pension Plan have joined together with one other firm (GIC, Singapore’s sovereign wealth fund) to invest a combined $700 million in XPO Logistics, a transportation logistics firm.

More details from Market Watch:

The transaction, which is complete and scheduled to settle on September 17, 2014, provides for the sale of newly issued common stock and preferred stock to the Investors. Upon approval by the company’s shareholders, the preferred stock will be converted into common stock and the Investors will hold approximately 22% of XPO’s common stock on a fully diluted basis. The $30.66 price per share of common stock issuable to the Investors represents a 5% discount to the trailing 20-day volume weighted average price. Bradley Jacobs and Jacobs Private Equity, LLC intend to vote in favor of the stock issuance. Jacobs Private Equity, LLC will remain the company’s largest shareholder.

Bradley Jacobs, chairman and chief executive officer of XPO Logistics, said, “We’re delighted to welcome PSP Investments, GIC and Ontario Teachers’ Pension Plan as significant shareholders in XPO. This strategic investment by three blue chip institutions is a strong endorsement of our plan for value creation. With the benefit of $700 million of additional equity to accelerate our growth, we can capitalize on an acquisition pipeline that’s livelier than expected. We’re now targeting approximately $9 billion of revenue and $575 million of EBITDA for 2017.”

The vice-presidents of PSP and the OTPP both released statement regarding the investment. From Market Watch:

Daniel Garant, senior vice-president, public markets for PSP Investments, said, “We are pleased to become a meaningful shareholder of XPO and support its board and management as it pursues its growth strategy. This investment in XPO is consistent with our Value Opportunities Portfolio’s mandate, which includes making strategic investments in publicly-listed companies that we believe have the capability of generating above average risk-adjusted returns over time and where PSP Investments can leverage its permanent and growing capital base over a long-term investment horizon.”

[…]

Michael Wissell, senior vice-president, public equities for Ontario Teachers’ Pension Plan, said, “Teachers’ believes in partnering with world-class entrepreneurs. We are pleased to invest alongside Brad Jacobs and his team. Their plans for XPO align with our approach to long-term value creation.”

The OTPP is the largest single-profession retirement fund in Canada and manages over $140 billion in assets.

PSP Investments manages $93 billion of assets.

Canada Pension Board to Open India Office

Pension360 covered last week the reported interest in Indian investments expressed by the Canadian Pension Plan Investment Board (CPPIB). Today, that interest became much clearer, as the CPPIB announced plans to open an India office in Mumbai.

More details from the Economic Times:

Canada Pension Plan Investment Board (CPPIB), the giant pension fund that makes private-equity investments, plans to open an India office and has hired Kotak Realty Fund executive V Hari Krishna as a key member of its local team.

Krishna would join CPPIB in the coming month from the Kotak fund where he was a director for more than nine years, said two people having direct knowledge of the matter. He has also worked at real estate consultancy firms in the pat.

The proposed India office will be the second for CPPIB in an emerging market, indicating the fund’s growing focus on India where the economy is expected to turn around after two years of sub-5 per cent growth. “The India office will be set up in Mumbai in the next two-three quarters and CPPIB intends to do direct transaction over the next 12-18 months,” said one of the two people. “The fund has been looking to hire heads for real-estate, infrastructure and equities for India to drive investment.”

The pension fund refused to comment on office opening or recruitment in India, including of Krishna. “As a growing global investment organisation, we do look at expansion to more locations,” said Mark Machin, senior managing director and president of Asia at CPPIB. Krishna didn’t reply to a text message seeking comment.

The CPPIB appears to be primarily interested in Indian infrastructure and real estate investments. From the Economic Times:

In June this year, it offered to invest around $322 million in India’s infrastructure sector through L&T Infrastructure Development Projects, a unit of Larsen & Toubro.

It offered another $250 million in a strategic alliance with Piramal Enterprises to provide structured debt financing to residential projects across major urban centers this February, and a $200 million strategic alliance with the Shapoorji Pallonji group to acquire stabilised office buildings that are foreign-direct-investment compliant in late 2013.

“India is a key long-term growth market for CPPIB. The fund has committed approximately US $1.4 billion in India since 2010 and will continue to look to India for investments that fit with our long-term investment mandate,” CPPIB’s Machin said in an email response.

The CPPIB would not confirm or deny the plans for an India office.

Newspaper: Report on Canadian Investment Expenses “Misses the Point”

Last week, Pension360 covered a report questioning the Canada Pension Plan’s new investment strategy, which had led to a more than 100 percent increase in investment expenses since 2006.

But one newspaper, the Hamilton Spectator, says the report missed the point entirely. From the Hamilton Spectator editorial:

Rousing displays of verbal fireworks could not conceal the study’s failure to find out what Canadians need to know. […] The country needs to know whether private-sector plans or the public plan is a more efficient way of saving for retirement.

The authors found the government collects the contributions to the Canada Pension Plan and pays out the pensions, for an administrative cost of around $550 million a year. The government recovers that cost by skimming an administrative charge off the contributions. If the CPP Investment Board counted that cost as part of its operating costs, those costs would be $550 million higher.

But we need to know if the government’s costs for collecting contributions and mailing out cheques are out of line with operators of private-sector pension plans. The study’s authors make no inquiry on that point.

A more useful study would produce evidence both from the public and private spheres. That study would have to be written by authors who gather the evidence first and then draw their conclusions. The study published last week seems more like the work of an agency with a narrow agenda — what you might call a self-serving bureaucracy.

The report, released last week, found the Plan’s investment expenses had increased from $600 million or 0.54% of assets in 2006 to $2 billion or 1.15 per cent of its assets in 2013.

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