Don Raymond, Senior VP, CPPIB, came from Goldman-Sachs. See 2012-06-11 CPPIB investment in Lockheed Martin increased by 14 times, 2010 to 2011.
The article below, CPPIB going on a buying spree, was written in March 2009.
By the end of 2009, excerpt from 2012-04-23 From Tootsie Rolls to tobacco: What’s in your CPP fund? (CPPIB), CBC News
” . . . In 2009, during the global financial crisis, the fund, like many, took a big hit, plummeting 18.6 per cent and losing $24 billion. This sparked a backlash from some critics who complained the top executives of the board received $7 million in bonuses despite the losses. …”
Now, about the buying spree (“$2-billion to $5-billion of debt”).
http://www.financialpost.com/related/topics/CPPIB+going+buying+spree/1431110/story.html
Karen Mazurkewich, Financial Post · Mar. 26, 2009
The Canada Pension Plan Investment Board is going on a big buying spree and to help it flex its investment muscle it is issuing debt for the first time.
Don Raymond, senior vice-president of public market investments at CPPIB, said the fund would issue $2-billion to $5-billion of debt over the next year to provide “additional flexibility” to fund longer term investments with a risk-profile similar to real estate, infrastructure and private debt.
“We are seeing some tremendous investment opportunities out there,” said Mr. Raymond, who added that CPPIB’s plan is to start “with the commercial-paper program to get our name into the marketplace and build up our track record as an issuer.”
Later in the year, the fund will issue a medium term note — in the five to ten-year range.
But will investors bite given the recent debacle with asset-back commercial paper? The answer according to analysts is a resounding yes.
“In the past there has been a good appetite for pension plan debt issuance,” said Chris Seip, head of the debt capital markets for RBC Capital Markets. “They are highly rated and they fit the bill for a flight to quality name in a market that continues to be dislocated,” he added.
Selling debt has always part of the long-term strategic plan of CPPIB, according Mr. Raymond. That said, the efficiency gain of doing this under these market conditions is much better, he added. The fund can raise money from investors at a much cheaper rate than securing a mortgage.
Mr. Raymond said the fund doesn’t know what index it would be part of yet, that’s still to be determined, but he presumed investors buying into a Canadian bond index would have a component tied to CPPIB issuance as well.
This is not the first pension plan to issue debt. Ontario Teachers’ Pension Plan Board’s (OTPPB’s) wholly-owned real estate subsidiary, Ontrea Inc. issued $600-million in 2001 and another $600-million in 2003; OMERS Realty Corp. raised $1-billion in two deals; The Caisse de dépôt et placement du Québec has scooped up $1.275-billion in two deals; and the realty unit of the British Columbia Investment Management Corp. raised $450-million in 2007. Most recently the Public Service Pension Plan did two term issues raising $1-billion on the market in the last four months.
“The CPPIB name is known and investors can relate to it and know it will be around for a long time,” said Eric Beauchemin, managing director, public finance DBRS, which gave the CPPIB an issuer rating of AAA. “In addition, the size of the portfolio and the low leverage employed also provides investors comfort knowing that they will be able to meet the financial obligations down the road,” he added.
Even pension analysts are positive about the move.
If it means getting cheaper rate to finance deals, it makes total sense, said Malcolm Hamilton, a principal at Mercer Human Resources. Mr. Hamilton said the fund is in a good position to bear risk because it has good liquidity and a steady stream of contributions from across Canada. Mr. Hamilton, however, warns that the managers of the fund must know when to draw the line.
“If they want to ramp up [the borrowing facility] incrementally to shoot for greater and greater returns, I think people should be concerned,” he said. “I hope that at some point they won’t interpret their mandate as running a 130/30 hedge fund because I don’t think that’s their mandate.”
Keith Ambachtsheer, director of the Rotman International Centre for Pension Management at the University of Toronto, also believes issuing debt to take advantage of attractive opportunities in the market place is a smart move. But he too has one caveat: “I think is that only institutions that really have solid risk management discipline should be doing this. We don’t want every pension fund in the country to think this is a good thing.”