CPPIB credit portfolio underweight

The debt portfolio had a total return of 13.9% the year ending 31 March.

The Canada Pension Plan Investment Board was underweight on its credit investment portfolio at the end of its latest fiscal year, though the pension plan hopes to swap its municipal bonds out for private debt.

The credit portfolio totaled 5.5 percent, or C$17.5 billion, ($12.93 billion; €11.55 billion) of  the C$316.9 billion portfolio as of 31 March, the end of fiscal year 2017, according to the annual financial results released on Thursday.

That percentage is slightly under the 8 percent long-term target credit allocation, which includes private debt and public fixed income but excludes government bonds, its annual report for the fiscal year ending 31 March shows.

The current credit allocation figure also marks a slight dip from 6.1 percent at the end of fiscal year 2016. 

Though under its strategic-target allocation amount, the Toronto-based pension plan’s credit investments boosted its total return rates for the fiscal year. The allocation showed a 13.9 percent return the 12-month period ending 31 March, which is up from the 8.4 percent return the previous fiscal year.

CPPIB has made a strategic decision to “[substitute] some government bonds with higher-yielding credits in public or private debt” to “further manage the total risk towards our target”, the report states.

CPPIB planned to allocate 85 percent of its portfolio to equity and 15 percent to debt– including municipal bonds – for the 2017 fiscal year, but ended the fiscal year with a ratio of 78 percent and 22 percent, respectively. CPPIB has the same 85 percent-15 percent goal for fiscal year 2018.

The pension plan adopted a long-term net annual return target of 3.9 percent, after inflation, in 2015. The plan projects these investment returns will finance 30-35 percent of its defined benefits.

The firm expanded its credit investment team this February, hiring Derek Jackson as managing director in its London office, as Private Debt Investor previously reported.

CPPIB has made debt investments with Kotak Mahindra Group ($450 million), Lone Star Funds ($100 million) and KKR ($50 million), according to PDI data.

The firm was not immediately available to comment.