WORKERS CAPITAL

China Exposure Tumbles to 5% at Canada Pension as Geopolitical Risks Rise

Layan Odeh
Wed, May 22, 2024

(Bloomberg) -- Canada Pension Plan Investment Board’s exposure to investments in yuan has fallen by half in just two years, as the money manager pulls back in the world’s second-largest economy because of higher risks.

Canada’s biggest pension fund held 5% of its assets in Chinese currency as of March 31, according to its annual report released Wednesday, down from 10% in 2022.

“Our strategy’s the same in China,” Chief Executive Officer John Graham said in an interview. “But with respect to investing, we’re always asking — how much and how do we get it? And certainly over the past few years, our appetite is probably less than it was historically, and that’s reflected in the size of the portfolio.”

The fund returned 8% in the fiscal year that ended in March, aided by a nearly 14% gain on its public stock portfolio. But Chinese equities were a drag on results, as China’s stock market “diverged from other major markets due to challenges in the real estate sector,” the annual report said.

Some of Canada’s largest institutional investors are adjusting their strategies in China, concerned about rising economic and policy risks and its deteriorating relationship with the US and other countries. Last year, a senior executive at British Columbia Investment Management Corp. told lawmakers that the fund was pausing direct investments in China, following a similar move from Ontario Teachers’ Pension Plan.

For CPPIB, Asia Pacific investments returned just 0.1% during fiscal year, partly due to foreign currency losses. The region represents 21% of the portfolio — down from 26% two years ago.

The fund eliminated about a dozen positions in its Greater China public equities team recently, representing close to 10% of its Hong Kong staff, Bloomberg News reported in March.

CPPIB, with assets of C$632 billion ($462 billion), has been active in dealmaking so far in 2024, and Graham said the drop in global deals is likely over. Central bank policy interest rates have stabilized and credit spreads have tightened in recent months.

“Over the past couple years, transaction activity has been a little bit below normal as the market tries to find a bid-ask spread,” Graham said.

“I think you’d expect to see us be more active over the next 12 months on both the buying and the selling side for most of the asset classes in the portfolio.”

Earlier this month, CPPIB agreed to buy utility owner Allete Inc. for about $3.9 billion in partnership with Global Infrastructure Partners. It also sold shares in the initial public offering of cruise operator Viking Holdings and is among the investors in health-care software company Waystar Holding Corp., which is seeking to raise as much as $1 billion in a US IPO, Bloomberg reported on May 14.