CPP to invest in real estate through bonds issuance

CANADA - The Canada Pension Plan Investment (CPPIB) Board is planning to issue up to C$5bn (€3bn) in fixed income paper over the next two years to help the pension fund invest in real estate and infrastructure.

The C$108.9bn pension fund said in a statement it planned to issue between C$2bn and C$5bn of debt to take advantage of distressed markets and acquire commercial real estate and infrastructure assets with attractive risk adjusted returns.

The fund is also looking at investing in a range of private equity debt opportunities.

"As the next logical step in the development of the portfolio, the debt programme will assist in both short-term cash management and create additional flexibility to fund long-term investments," said the CPPIB.

The debt programme will represent 5% of the fund's current assets and is expected to never exceed 10% of the portfolio. The pension's Board said it would be another 11 years before the portion of the fund is used to help pay benefits.

CPPIB plans to start by issuing short-term commercial paper next month, to provide flexibility in the near future and build up a reputation in the debt markets.

The fund will then issue medium-term bonds sometime this autumn to help it invest in long-term assets like real estate and infrastructure.

This is the first time the CPPIB has used debt as a funding vehicle though Ontario Municipal Employees Retirement System (OMERS), Ontario Teachers' Pension Plan and the Public Sector Pension(PSP) have all used debt as an investment tool in the past.

The CPPIB currently allocates 7.1% to real estate and has a property portfolio worth C$7.7bn which is mostly made up of commercial offices and retail properties.

The pension fund's property assets are predominantly located in Canada's main cities and in the United Kingdom, and to a lesser extent in the United States, Continental Europe and Asia Pacific.

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