CPPIB also taken in by Sino-Forest story

As much as you might think this Sino-Forest (TRE:TSX) fiasco is someone else’s problem, I have some news. It appears to be yours, too, according to CPP Investment Board’s public equity holdings as of March 31, 2011. We don’t know if they hit the sell button prior to the recent extended batch of increasingly bad news, which send the stock down from $25 to $1.42, and perhaps we’ll never know. Since firms such as global hedge fund star Paulson & Co., or Singapore’s S$193B global soverign wealth fund goliath Temasek were caught holding the bag…perhaps “we” rode it down as well.

The good news is, as with so many of their publicly-traded investments, the Sino-Forest position is/was immaterial to our $153 billion asset base. Strangely, though, CPPIB has a publicly-stated policy that giving a Canadian venture fund or private equity manager a $21 million commitment isn’t worth their while, given the size of the asset base and all.

However, investing $21 million into Sino’s now untradeable shares is different. Putting $21 million into an offshore forest trading operation is clearly meaningful (why else would they bother?), yet providing Canadian-based venture funds Celtic House, Edgestone, Lumira or Ventures West with a follow-on lead investment is too much of a hassle, and too small (CPPIB Execs state this publicly) relative to the CPPIB’s $153B pool, to warrant the effort. A dichotomy I’ll never quite get my head around.

And, if you thought CPPIB was just shadow indexing, you’d be wrong. As proof, here are 15 well-known domestic stocks that CPPIB fund managers thought were less attractive than Sino:

BCE: CPPIB held a $17 million position as of March 31/11
Bombardier: $7 million position
Brookfield Asset Management: $19 million position
CIBC: $18 million position
Canadian Tire: $11 million position
Imperial Oil: $11 million position
National Bank: $7 million position
Onex: $6 million position
Power Corp.: $7 million position
Shoppers Drug Mart: $10 million position
SNC-Lavalin: $15 million position
Telus: $14 million position
Thomson Reuters: $15 million position
TMX: $15 million position
TransCanada: $13 million position

As my newspaper friend John is wont to say: “You can’t make this stuff up”. Of course, there’s nothing practical that CPPIB’s team could have done to discover the alleged Sino fraud; they, like most, rely on independent equity research analysts and the Company’s Board of Directors. This apparent bad experience is an all-too frequent occurence in Canada, and yet IMET trucks have yet to role.

But, if taking a shot on Sino’s binary outcome is worth the risk, despite the investment being immaterial to CPPIB’s results (regardless of the outcome), perhaps reloading on any of Celtic House, Edgestone, Lumira or Ventures West is worth the hassle, after all. At least they are helping Canadian entrepreneurs create jobs, drive economic growth and solve important medical or technological needs.

As I posted last week (see “CPPIB Q1 2011 General Partner performance numbers” Aug 26-11), the 2000-2005 vintage Canadian legacy VC program that CPPIB used to fund directly has actually experienced a five percent positive return of our collective capital to date. Creating good jobs in Canada at a profit sounds much more appealing, and necessary for the CPP to survive forever, than losing money and getting a black eye on an alleged foreign “ponzi scheme”. With a weighting that exceeded such great firms as BCE, Bombardier, Brookfield Asset Management, CIBC, Canadian Tire, Imperial Oil, National Bank, Onex, Power Corp., Shoppers Drug Mart, SNC-Lavalin, Telus, Thomson Reuters, TMX and TransCanada….

MRM