(October 25 – 11:05 ET) – The Canada Pension Plan Investment Board dumped most of its Nortel stock during September, it announced today.
The CPP Investment Board has been investing 80% of its cash flow in a fund that substantially replicates the TSE 300 index, with the remainder invested in two foreign stock index funds. Nortel has accounted for about one-third of the TSE 300 index in recent months, therefore, about one-quarter of the CPP Investment Board’s assets were invested in one security.
Until recently, the CPP Investment Board was required to invest in Canadian stocks through funds that substantially replicated stock exchange indices. In late August, 2000, the federal and provincial governments finalized an amendment that allows the CPP Investment Board to invest actively as much as 50% of its Canadian equities. As a result of the amended regulation, the CPP Investment Board reduced its Nortel portfolio weight to approximately 14%, the lowest level possible under its asset allocation policy and the amended regulation.
“This initiative reduces the concentration in the security that has dominated the TSE 300 index because of its remarkable success,” commented John A. MacNaughton, CPP Investment Board president and chief executive officer. “Our Nortel position has served us well. Our decision to reduce our investment is based on a core principle of prudent risk management, namely to limit portfolio exposure to any single stock. We have not taken a view on Nortel itself.”
MacNaughton added that as the CPP Investment Board’s policy is to invest no more than 10% of its portfolio at market value in a single security, it will reduce the Nortel position further when changes to the regulation permit.
At the end of June, the CPP Investment Board had $4.8-billion of assets, all invested in equities. Within the decade, it expects to have more than $100-billion in assets.
-IE Staff
http://www.cppib.ca/