TORONTO - The CPP Investment Board faces a conundrum in a volatile economic environment — the downturn has created a wealth of attractive acquisition opportunities but tight credit markets make it difficult to secure financing.

"We are seeing some good investment opportunities and where we do, as we did last quarter, we're taking advantage of those," CPPIB president and CEO David Denison said Wednesday in an interview to discuss the fund's first-quarter results.

"(But) if you're trying to be a disciplined investor and look at investment opportunities over three, six, nine months, it's very hard without a stable credit market to be able to proceed with confidence," he added.

The fund made a number of plays for lucrative assets in real estate, infrastructure and Canada's oilsands in the quarter.

But it could not escape the impact of its exposure to volatility in equity markets.

The CPP Investment Board, which invests money not required to pay benefits under the Canada Pension Plan, managed to finish the quarter with a small gain, as $3.8 billion in contributions helped to offset a $1.7-billion, or 1.3 per cent, loss on equity investments.

As a result, the fund finished the first three months of fiscal 2011 with $129.6 billion in assets, up from 127.6 billion at the end of fiscal 2010 after what it called a "challenging" quarter.

"Despite the fact that global public equity markets were down —literally every one of them during the quarter, some of them with double digit declines — what some of our other categories did was offset that downturn," Denison said.

The investment board works to hedge against risk in the equity markets by diversifying into private equity, real estate, infrastructure and private debt holdings.

The fund's five-year annualized investment rate of return stood at three per cent at the end of the quarter. The 10-year rate of return was 5.1 per cent.

Denison expects a bounce back in equity markets over the next five years, but added he can't predict where the markets will go over the next quarter.

In the past few months there have been periods that allowed the board to access financing with confidence, and others, like in the aftermath of the Greek debt crisis, in which the markets became too unstable, Denison said.

Access to credit markets is expected to remain difficult through the balance of fiscal 2011, but Denison said the environment also provides opportunities to earn attractive risk-adjusted returns, especially in the area of private debt.

The fund's recently launched private debt program, which provides financing to distressed companies, is flourishing and has provided $2.2 billion in financing to such companies over past 18 months, Denison said.

"Because credit conditions are challenging, that's a good time for us to be providing financing through private debt structures."

"There continue to be lots of good opportunities for us where we think the credit spreads that we can earn for the fund are very attractive."

Denison said the fund is also optimistic about real estate opportunities.

"There's a lot of mortgage refinancing that has got to take place over the next 24 months and not all of that financing is available. So part of what will happen is sales of properties, so it's a good time for us to be a buyer," he added.

Denison said the board was able to take advantage of attractive asset prices in the first quarter, especially in the real estate market.

The board announced last week that it had partnered with a European real estate firm to buy an eight-floor office building in London, for 183 million pounds (C$297 million).

The board also continues to work with Australia's Intoll Group (ASX:ITO) to close its non-binding, $3.2-billion proposal to acquire the toll road operator and partial owner of Ontario's Highway 407 Express Toll Route.

During the quarter the fund also launched a joint bid with Onex Corp. (TSX:OCX) for U.K.-based global manufacturing company Tompkins PLC for $4.5 billion, in what Denison called the "largest private equity transaction to date in 2010."

"The fact that its the largest and there aren't many others to hold up against it, just is a tangible indication of how difficult it is to access credit markets," he said.

The most recent projection pegs the sustainability of the fund at 75 years, with contributions expected to exceed annual benefits paid until 2021.

The CPPIB is designed to build up a pool of investments that can generate enough money to take up the slack as contributions from employers and employees fall short of payouts.