08/10/2012 10:19 EDT | Updated 10/10/2012 05:12 EDT

CPPIB says playing with politics could "confuse mandate" of pension fund

TORONTO - As Quebec politicians debate whether the province's public pension manager should intervene to protect homegrown companies, its federal counterpart says playing with politics risks undermining its primary purpose — maximizing investment returns for millions of Canadians.

The CPP Investment Board's president said Friday there's no place for public policy in the fund manager's mandate and that its independence from both provincial and federal governments is one of its greatest strengths.

Meanwhile, moves to increase the role of Quebec's Caisse de depot, which has a mandate to help the province's economy, have grabbed attention during the province's election campaign, as politicians pledge to use it to stop foreign takeovers.

CPPIB president and chief executive Mark Wiseman said intervening in public policy could confuse the mandate of the pension fund, which invests on behalf of 18 million Canadian contributors and beneficiaries.

"It would be much more complicated if we were both a public policy body and an investment body," he said in an interview.

"For us, our job is very clear, we leave public policy to those in government and they leave investment activities to us and we've never been influenced or pushed to make investments for political purposes."

The Coalition Avenir Quebec promises to force the Caisse to invest in large Quebec businesses to help protect the from foreign takeovers.

The promise comes as Quebec hardware chain Rona (TSX:RON) fends of a hostile bid from U.S. giant Lowe's that came just days before Premier Jean Charest announced Quebec will go to the polls on Sept. 4. The provincial government has also denounced the proposal.

And Parti Quebecois leader Pauline Marois proposed this week — while standing in front of a Rona store — to use $10 billion of Caisse money to prevent foreign takeovers.

By contrast, Wiseman said independence is "embedded in the entire structure and governance" of the fund manager, which invests the money not needed by the Canada Pension Plan to pay current benefits under the plan.

"We're not here as an arm of public policy, we have the benefit of having a very clear purpose, which is to try and maximize the risk-weighted returns in the long-run for our beneficiaries," he said.

The CPP Investment board said Friday the CPP Fund earned a return of 0.5 per cent in its latest quarter, as stock markets were battered and interest rates weakened amid concerns about the global economy.

"The equity markets were of course, around the globe, down for the quarter, but again, we're talking about a period of 90 days," Wiseman said.

Canada's Chief Actuary has said the fund needs to see an average of a four per cent annual real rate of return for the fund to be sustainable for the next 75 years. The fund's 10-year average rate is about 6.3 per cent.

"We've done that in a reasonably low interest rate environment," Wiseman said, adding the fund has been compiled so that it can focus on a long-term investment horizon — meaning short-term fluctuations are not a major concern.

"It has allowed us to have reasonably high proportion of equity exposure in the fund, that's more volatile to be sure over a short period of time, but it will lead to higher returns over the long run."

The board said the fund held roughly $165.8 billion in net assets at June 30, up from $161.6 billion at March 31, boosted by $800 million in investment income and $3.5 billion in net CPP contributions.

As its returns have been hit recently by equity markets, the fund has also been announcing a number of investments private assets in stable sectors like real estate, infrastructure and utilities.

On Thursday, the board announced an investment in a US$890-million partnership to develop industrial real estate in the United States, its first direct investment in the sector.

But the fund manager has not changed its strategy to ramp up private investment because it is concerned about equity markets, Wiseman said.

"It's not because we have a particularly negative —or positive — view about public equity markets. We think that public equity markets in the long-term will continue to play a very important role in the overall portfolio construction," he said.

At June 30, the fund included $84 billion in public and private equity investments —representing about 50.9 per cent of its portfolio, $54.3 billion in fixed income — 32.7 per cent of the total — and $27.2 billion, or 16.4 per cent of the portfolio in real estate and infrastructure investments.