Canada Pension Buys Student Housing Manager

Canada

The Canada Pension Plan Investment Board (CPPIB) announced on Friday that it is dipping its feet in the UK college student-housing sector.

[Read the press release here.]

CPPIB paid $1.67 billion to buy Liberty Living, a company that works with dozens of UK universities to provide and manage housing for students.

More from Reuters:

As part of the deal, CPPIB said it had bought more than 40 residences in 17 of the largest university towns and cities across the UK, containing more than 16,700 rooms, from Brandeaux Student Accommodation Fund.

The deal also includes the Liberty Living management platform, it added in a statement.

“As a long-term investor, this is … an ideal platform through which we can build further scale,” said Andrea Orlandi, Managing Director, Head of Real Estate Investments Europe, CPPIB.

“This sector is an attractive one for CPPIB and we expect to see continued demand for well-located and well-managed student residences such as those within the Liberty Living portfolio,” Orlandi added.

[…]

In a search for yield as fixed income returns diminish, pension plans globally are increasingly looking to buy into other high-yielding assets to maintain returns and meet their long-dated liabilities, with real estate chief among them.

CPPIB manages approximately $190 billion in assets.

 

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Pension Pulse: Is Farmland a Good Fit For Pensions?

farmland

On Monday, Pension360 covered the debate over a recent investment in a 115,000 acre tract of Saskatchewan farmland by the Canada Pension Plan Investment Board (CPPIB).

On one side of the fight is Dan Patterson, a rancher and former general manager of the Farm Land Security Board who is skeptical of the effect the investment will have on local people and land prices, among other things.

On the other side is CPPIB, who argues that the farmland will prove to be a good fit for both the pension fund and the locals.

On Tuesday, Leo Kolivakis of Pension Pulse weighed in on the broader issue of whether farmland is a good fit for pension funds. His comment is printed below.

______________________

By Leo Kolivakis, Pension Pulse

I have to admit, Mr. Patterson raises some excellent points that need to be properly addressed by CPPIB. In particular, how is CPPIB going to “maximize returns” without hurting the livelihood of local farmers and squeezing them out of owning farmland?

And when Mr. Leduc claims “CPPIB is quintessentially Canadian,” I say prove it by hiring a truly diverse workforce that reflects Canada’s multicultural landscape and takes into account the plight of our minority groups, especially aboriginals and persons with disabilities, the two groups with scandalously high unemployment. 

In fact, I have publicly criticized all of Canada’s large pensions for lack of diversity in the workplace, and for good reason. They simply don’t do enough to hire all minorities and it seems that operating at arms-length from the government is convenient when it suits their needs, like justifying their hefty payouts, but less so when it comes to taking care of society’s most vulnerable and diversifying their workforce (even though they should all abide by the Employment Equity Act).

Importantly, as someone who suffers from multiple sclerosis and has faced outright discrimination from all of Canada’s venerable public pensions, especially the Caisse and PSP, I challenge all of you to publish an annual diversity report which shows exactly what you’re doing to truly diversify your workforce. And no lip service please, I want to see hard statistics on the hiring of women, visible minorities, aboriginals and especially persons with disabilities.

So, when Mr. Leduc claims “CPPIB is quintessentially Canadian,” it just rubs me the wrong way. Let’s not kid each other, all of Canada’s large pensions are more Canadian for some groups than they are to others. And I take CPPIB to task because it should be leading the rest when it comes to diversity in the workplace.

Now that I got that off my chest, let me discuss some other concerns I have with pensions investing in farmland. Jesse Newman of the Wall Street Journal recently reported, Farmland Values in Parts of Midwest Fall for First Time in Decades:

Farmland values declined in parts of the Midwest for the first time in decades last year, reflecting a cooling in the market driven by two years of bumper crops and sharply lower grain prices, according to Federal Reserve reports on Thursday.

The average price of farmland in the Federal Reserve Bank of Chicago’s district, which includes Illinois, Iowa and other big farm states, fell 3% in 2014, marking the first annual decline since 1986, the Chicago Fed said. Prices for cropland during the fourth quarter remained steady compared with the previous quarter, according to the bank’s survey of agricultural lenders, though half of all respondents said they expect farmland values to decline further in the current quarter.

In the St. Louis Fed’s district, which includes parts of Illinois, Kentucky and Arkansas, prices for “quality” farmland gained 0.8% in the fourth quarter compared with year-ago levels, despite lower crop prices and farm incomes in the region. A majority of lenders in the district expect values to cool in the current quarter compared with the first quarter of last year, reflecting reduced demand for land amid tighter profit margins for farmers.

The reports spotlight an overall slowdown in the U.S. farm economy and in the appreciation of farmland prices. Crop prices had soared for much of the past decade, fueled by drought and rising demand for corn from ethanol processors and foreign importers. The gains pushed agricultural land values so high that some analysts warned of a bubble.

On Tuesday, the U.S. Department of Agriculture projected net U.S. farm income this year would fall to $73.6 billion, the lowest since 2009, from $108 billion in 2014.

Prices for corn, the biggest U.S. crop by value, have tumbled more than 50% since the summer of 2012, when they soared to record highs amid a severe U.S. drought. Growers produced the nation’s largest corn and soybeans harvests ever last autumn, helped by nearly flawless weather over much of the growing season.

In the Chicago Fed district, farmland values in the latest quarter dropped in major corn-producing states like Illinois, Iowa and Indiana compared with year-ago levels, while land values in Wisconsin increased slightly and were unchanged in Michigan. The fourth quarter of 2014 marked the first time since the third quarter of 2009 that cropland values in the district dropped overall compared with a year earlier.

“Lower corn and soybean prices have been primary factors contributing to the drop in farmland values,” David Oppedahl, senior business economist at the Chicago Fed, wrote in Thursday’s report, adding that for 2015, “district farmland values seem to be headed lower.”

While exceptional returns for livestock producers in 2014 helped blunt the impact of falling crop prices on land values, Mr. Oppedahl said, the trend may come to a halt if prices for animal feed grains stabilize somewhat this year.

Meanwhile, the St. Louis Fed said farm income, household spending by farms and expenditures on farm equipment declined in its region. Midwestern bankers expect a continued slowdown in the current quarter in those three categories.

“It is very difficult for farmers to buy farmland and new equipment with corn prices in the $3.50 range,” said one Missouri lender in the St. Louis Fed report.

Bankers in the Midwest also noted a rise in financial strain for crop farmers in the latest quarter. Lenders in the Chicago region reported a dramatic increase in demand for farm loans compared with year-ago levels, with an index of loan-demand reaching the highest level since 1994. Farm loan repayment rates also were “much weaker,” in the fourth quarter of 2014 compared with the same period a year earlier, the bank said, with an index of loan-repayment falling to the lowest level since 2002.

As if that’s not bad enough, just yesterday, Joe Winterbottom and P.J. Huffstutter of Reuters reported, Rent walkouts point to strains in U.S. farm economy:

Across the U.S. Midwest, the plunge in grain prices to near four-year lows is pitting landowners determined to sustain rental incomes against farmer tenants worried about making rent payments because their revenues are squeezed.

Some grain farmers already see the burden as too big. They are taking an extreme step, one not widely seen since the 1980s: breaching lease contracts, reducing how much land they will sow this spring and risking years-long legal battles with landlords.

The tensions add to other signs the agricultural boom that the U.S. grain farming sector has enjoyed for a decade is over. On Friday, tractor maker John Deere cut its profit forecast citing falling sales caused by lower farm income and grain prices.

Many rent payments – which vary from a few thousand dollars for a tiny farm to millions for a major operation – are due on March 1, just weeks after the U.S. Department of Agriculture (USDA) estimated net farm income, which peaked at $129 billion in 2013, could slide by almost a third this year to $74 billion.

The costs of inputs, such as fertilizer and seeds, are remaining stubbornly high, the strong dollar is souring exports and grain prices are expected to stay low.

How many people are walking away from leases they had committed to is not known. In Iowa, the nation’s top corn and soybean producer, one real estate expert says that out of the estimated 100,000 farmland leases in the state, 1,000 or more could be breached by this spring.

The stakes are high because huge swaths of agricultural land are leased: As of 2012, in the majority of counties in the Midwest Corn Belt and the grain-growing Plains, at least 40 percent of farmland was leased or rented out, USDA data shows.

“It’s hard to know where the bottom is on this,” said David Miller, Iowa Farm Bureau’s director of research and commodity services.

SIGNS OF TROUBLE

Grain production is, however, unlikely to be affected in any major way yet as landowners will rather have someone working their land, even at reduced rates, than let it lie fallow.

But prolonged weakness in the farm economy could send ripples far and wide: as farms consolidate, “there would be fewer machinery dealers, fewer elevators, and so-on through the rural economy,” said Craig Dobbins, professor of agricultural economics at Purdue University.

Possibly also fewer new farmers.

Jon Sparks farms about 1,400 acres of family land and rented ground in Indiana. His nephew wants to return to work on the farm but margins are tight and land rents high. Sparks cannot make it work financially.

“We can’t grow without overextending ourselves,” Sparks said. “I don’t know what to do.”

Landowners are reluctant to cut rents. Some are retirees who partly rely on the rental income from the land they once farmed, and the rising number of realty investors want to maintain returns. Landlords have also seen tenants spend on new machinery and buildings during the boom and feel renters should still be able to afford lease payments.

“As cash rent collections start this spring, I expect to see more farm operators who have had difficulty acquiring adequate financing either let leases go or try and renegotiate terms,” said Jim Farrell, president of Farmers National Co, which manages about 4,900 farms across 24 states for land-owners.

Take an 80-acre (32 hectare) farm in Madison County, Iowa, owned by a client of Peoples Company, a farmland manager. The farmer who rented the land at $375 an acre last year offered $315 for this year, said Steve Bruere, president of the company. The owner turned him down, and rented it to a neighbor for $325 — plus a hefty bonus if gross income tops $750.

There are growing numbers of other examples. Miller, of the Iowa Farm Bureau, said he learned about a farmer near Marshalltown, in central Iowa, who had walked away from 650 acres (263 hectares) of crop ground because he could not pay the rent. Just days later, he was told a north-central Iowa farmer breached his lease on 6,500 acres.

COURTS OR LOANS

Concern about broken leases has some landlords reviewing legal options, according to Roger A. McEowen, director of the Iowa State University Center for Agricultural Law and Taxation. His staff began fielding phone calls from nervous landowners last autumn.

One catch is that many landlords never thought to file the paperwork to put a lien on their tenants’ assets. That means landowners “can’t go grab anything off the farm if the tenant doesn’t pay,” McEowen said. “It also means that they’re going to be behind the bank.”

Still, farmers could have a tough time walking away from their leases, said Kelvin Leibold, a farm management specialist at Iowa State University extension.

“People want their money. They want to get paid. I expect we will see some cases going to court over this,” he added.

To avoid such a scenario, farmers have begun turning to banks for loans that will help fund operations and conserve their cash. Operating loans for farmers jumped 37 percent in the fourth quarter of 2014 over a year ago to $54 billion, according to survey-based estimates in the Kansas City Federal Reserve bank’s latest Agricultural Finance Databook.

Loans with an undefined purpose — which might be used for rents, according to the bank’s assistant vice-president Nathan Kauffman — nearly doubled in the fourth quarter of 2014 from a year earlier to $25 billion.

Total non-real estate farm loan volumes jumped more than 50 percent for the quarter, to $112 billion.

“It’s all about working capital and bankers are stressing working capital,” said Sam Miller, managing director of agricultural banking at BMO Harris Bank. “Liquidity has tightened up considerably in the last year.”

These articles highlight two things: First, the bubble in farmland is bursting and second, when it bursts and farmers walk away from their leases, it could potentially mean costly and lengthy court battles pitting landowners (ie. endowment funds and public pension funds like CPPIB and PSPIB which also invests in farmland) against farmers. That doesn’t look good at all for pensions.

All this to say, while it’s really cool following Harvard’s mighty endowment into timberland and farmland, when you come down to it, managing and operating farmland is a lot harder than it seems on paper and the risks are greatly under-appreciated. Add the potential of global deflation wreaking havoc on all private market investments and you understand why I’m skeptical that farmland is a good fit for pensions, even if they invest for the long, long run.

 

Photo by  Mark Robinson via Flickr CC License

Canada Pension Defends Saskatchewan Land Purchase

Canada

The Canada Pension Plan Investment Board (CPPIB) has had to absorb some criticism lately, stemming from its recent purchase of a large tract of Saskatchewan farmland.

CPPIB bought 115,000 acres of Saskatchewan farmland in 2013; but the fund is now coming under fire for artificially inflating land values, among other things. Some observers are worried that there is a disconnect between what is best for the land and what is best for CPPIB’s bottom line.

[Read the criticism of the deal here.]

CPPIB senior official Michel Leduc has responded to some of those remarks in a column published last week in the Leader Post. From the column:

CPPIB has the ability to spend money on improvements to the farms, and to own the land for decades. During that time many emerging countries will see rapid increases in population and wealth, increasing the demand for food. Saskatchewan has the potential to be a big beneficiary of this global trend.

We spent a long time studying farming dynamics before we bought this land. And we’re proud to own it.

[…]

For a long time now roughly 40 per cent of Saskatchewan’s farmland has been rented, rather than owned, by the farmers who farm it.

Within about six months of owning the land we ensured that 18 abandoned buildings were demolished, seven old storage and fuel tanks were removed, and three yard sites were cleared up.

In addition, two ponds that were being used to dump waste were cleaned out. An abandoned water well was capped. We are working on improvements to irrigation, storage and drainage.

We want to partner with local farmers to improve production techniques – and the livelihoods of those working in the sector.

[…]

CPPIB is a patient, responsible, long-term investor. We do not plan to amass huge individual holdings of farmland, or to squeeze out returns. We will make reasonable investments to improve farms and help those farmers who choose to partner with us to compete.

Read Leduc’s full column here.

 

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Canada Pension CEO Has Eyes Peeled For Opportunities Amidst Volatility

Canada

Canada Pension Plan Investment Board (CPPIB) Chief Executive Mark Wiseman sat down with Reuters for an interview last Friday, and made some interesting comments on how his fund deals with market volatility.

Wiseman said his fund would likely be particularly active in the coming months as fluctuations in commodities and currency markets open up investment opportunities.

Wiseman’s comments, from Reuters:

CPPIB, which manages Canada’s public pension fund, said that while investment deals have been slower in recent months because assets are fully valued, recent sharp movements in commodity and currency markets should help it find acquisitions.

“We are seeing more volatility in markets and that should generate more opportunities for CPPIB,” Chief Executive Mark Wiseman said in an interview.

“If you look at increased volatility, not just in equity markets but in currency markets, in commodity markets, the long-term view and those comparative advantages that we have, in these types of market conditions … our comparative advantages are more valuable,” he said, pointing to CPPIB’s scale, long investment horizon and certainty of assets.

[…]

Wiseman said that while CPPIB did not see deflation as a particularly large risk to the global economy, the world appeared to be moving to a two-speed model, with China and the United States showing growth and Europe and Japan needing “substantial long-term structural reforms” to improve.

“Let’s talk about Europe. It’s a very difficult situation. The economy has continued to underperform since the global financial crisis, and in terms of structural reforms, they have been reasonably slow in coming, for a myriad of reasons,” Wiseman said.

The CPPIB manages $191.3 billion in pension assets.

 

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Canada Pension To Invest $400 Million in Australian Freeway

free way

The Canada Pension Plan Investment Board (CPPIB) announced on Sunday a $407 million investment in an Australian freeway project.

CPPIB is part of a group of investors that bought the toll road. The pension fund’s $400 million investment will snag it a 25 percent stake.

More from the Wall Street Journal:

Canada’s largest pension fund said Sunday it would invest over a half-billion Australian dollars in an Australian motorway project aimed at reducing traffic congestion in the suburbs north of the country’s largest city, Sydney.

The Canada Pension Plan Investment Board said in a statement it was part of consortium that agreed to buy and operate a new toll road located northwest of Sydney. CPPIB said its investment of 525 million Australian dollars ($407.9 million) in the NorthConnex tunnel motorway represented a 25% stake. Its consortium partners include two Australia-based entities, Transurban Group and Queensland Investment Corp.

[…]

The project is designed as a 5.6-mile tunnel in northern Sydney, which is Australia’s largest city, and would link two main highways. Construction is scheduled to begin in early 2015 and is expected to be completed in 2019.

CPPIB manages $184 billion in assets.

CPPIB Can Invest Like “An 18-Year-Old”, Says CEO As Fund Looks to Cut Bond Allocation

canada

Canada Pension Plan Investment Board (CPPIB) CEO Mark Wiseman told Bloomberg this week that his fund can invest like “an 18-year old” as he looks to cut the fund’s bond allocation and move more money into riskier assets.

CPPIB allocates 28 percent of assets to fixed income. That’s down from 95 percent 15 years ago.

More from the Bloomberg interview:

With years of income and investing ahead, the Canada Pension Plan Investment Board can afford to own more risky assets such as real estate and stocks, according to Chief Executive Officer Mark Wiseman. Pension contributions will continue to grow through 2022, allowing the fund to reduce its 28 percent holdings in fixed income, he said.

“We’re an 18-year-old investor,” Wiseman, who’s 44, said during an interview Tuesday at Bloomberg’s Toronto office. “The portfolio can afford to have less bonds than it has today.”

With yields on fixed-income securities at or close to record lows, Wiseman is joining Canada’s second largest pension plan, the Caisse de Depot et Placement du Quebec, in saying he’s looking to reduce the amount of money invested in debt to seek higher returns elsewhere.

“The low interest environment is a big challenge for institutional investors,” Wiseman said. “We can get higher risk-adjusted returns than we can in the bond market.”

The yield on Canada’s benchmark 10-year bond fell to a record 1.294 percent Friday after government data showed gross domestic product contracted in November. The central bank unexpectedly cut its key interest rate Jan. 21.

CPPIB manages $183 billion in assets.

 

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Why Canada Pension CEO Is Bullish on Energy Assets

oil barrels

Canada Pension Plan Investment Board (CPPIB) CEO Mark Wiseman spoke to a crowd at the World Economic Forum last week about why he is bullish on energy even as oil prices have plunged.

His remarks, according to Bloomberg:

“Part one, the world is consuming about 90 million barrels a day,” said Wiseman, chief executive officer of the Canada Pension Plan Investment Board. “Part two, God isn’t making any more.”

Wiseman said that simple supply and demand perspective all but guarantees oil prices will be higher 10 years down the road, offering investment opportunities now for the C$234 billion ($188 billion) fund.

“I’ll take that bet” on oil’s rebound, he said in an interview Tuesday at Bloomberg’s Toronto office.

Oil slid almost 50 percent last year as U.S. shale production surged while the Organization of Petroleum Exporting Countries resisted calls to cut supply. That’s had a dramatic impact on the value of oil companies around the world as prices fell to a five-year low at about $45 a barrel.

This has Toronto-based Canada Pension looking at a range of investments — from buying equity and partnering on acquisitions to outright takeovers, Wiseman said.

“We see a lot of value in the Western Canadian basin,” he said, noting that oil sands projects are on his radar.

The CPPIB manages $188 billion in assets.

 

Photo by ezioman via Flickr CC License

Canada Pension Chief Talks Profitable Alibaba Investment

alibaba

The chief executive of the Canada Pension Plan Investment Board (CPPIB) talked with the Financial Post this week about the Board’s investment in Alibaba in 2011.

At the time, Alibaba was an unknown tech company in China. A few years later, the company’s initial public offering was the largest in history.

But CPPIB CEO Mark Wiseman says the investment was no “quick win”.

He told the Financial Post:

The US$314.5-million investment, while very profitable, happened because of a decision more than five years earlier to put “feet on the ground in Asia” by opening an office in Hong Kong in 2008, he said Monday.

“Our team in Hong Kong was able to educate our investment committee and others back here in Toronto, so that when the [initial] investment opportunity finally came to fruition in 2011, we were in a position to understand the business,” Mr. Wiseman said in an interview.

“They understood the Chinese market and the Chinese consumer. They had real experience in the region and understood both the similarities and, importantly, the differences between the way that retailing and trade are done in China [and how it’s done in North America].”

CPPIB subsequently increased its stake in Alibaba in 2012 and again through the IPO, and the combined stake is now worth “substantially more” than the cost base.

The CPPIB has a total of $314.5 million invested in Alibaba.

 

Photo by  Charles Chan via Flickr CC License

CPPIB CEO Urges Canada to Look Overseas for Growth

globe

The CEO of the Canada Pension Plan Investment Board (CPPIB) told the Toronto Region Board of Trade on Monday that Canada should be looking overseas and around the world for growth opportunities.

More on Mark Wiseman’s remarks from the Times Colonist:

Meanwhile, Wiseman said in a speech prepared for Monday’s annual dinner of the Toronto Region Board of Trade that Canadian organizations should be looking overseas for growth.

He noted that the CPPIB already invests 70 per cent of its capital outside of Canada, with a particular focus on China, India and Brazil.

“Most of you are familiar with Wayne Gretzky’s style of playing hockey — he staked to where the puck was going to be, not to where it was,” Wiseman said in his speech to the business audience.

“To put it bluntly, Canada needs to follow Gretzky’s practice.”

Wiseman says Canada should leverage its strong reputation overseas and its large population of immigrants, who possess a wealth of global experience that can help Canadian companies expand abroad.

“Having international skills and knowledge is a key asset — and it’s one that won’t rise and fall in value along with global commodity prices,” Wiseman said.

The CPPIB managed $201.1 billion in assets at the end of last fiscal year.

 

Photo by  Horia Varlan via Flickr CC License

Canada Pension Plan Investment Board Announces Series of Executive Appointments

Canada

The CPPIB is welcoming two executives into new posts and saying goodbye to another this week.

The board has appointed or promoted two new Senior Managing Directors, one of whom will replace a departing Managing Director as Global Head of Private Investments.

More details from a release:

Mark Wiseman, President & Chief Executive Officer, Canada Pension Plan Investment Board (CPPIB), is pleased to announce the following senior executive appointments:

* Mark Jenkins is promoted to Senior Managing Director & Global Head of Private Investments responsible for leading the direct private equity, infrastructure, principal credit investments, natural resources and portfolio value creation functions. Mr. Jenkins, who becomes a member of CPPIB’s Senior Management Team, joined CPPIB in 2008 and most recently held the role of Managing Director, Head of Principal Investments.

* Pierre Lavallée is appointed to the new role of Senior Managing Director & Global Head of Investment Partnerships. Mr. Lavallée will lead this new investment department to focus on broadening relationships with CPPIB’s external managers in private and public market funds, secondaries and co-investments, expanding direct private equity investments in Asia and further building thematic investing capabilities. Mr. Lavallée, who joined CPPIB in 2012, will continue in his current role as Senior Managing Director & Chief Talent Officer until a successor is appointed.

These appointments are effective immediately.

Mr. Wiseman also announced today that André Bourbonnais will be leaving CPPIB to assume the role of Chief Executive Officer at the Public Sector Pension Investment Board in Montreal, effective March 30, 2015. Mr. Bourbonnais joined CPPIB in 2006 and was most recently Senior Managing Director & Global Head of Private Investments.

You can read the biographies of the new Senior Managing Directors here.

 

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