CPP earns $3 billion in latest quarter

(February 12, 2004) Robust equity markets combined with positive bond returns boosted CPP assets by $3.1 billion in the three months ending December 31, 2003 — a 5% return. Year-to-date, CPP assets are up nearly $8 billion or 14%, the CPP Investment Board (CPPIB) reported today.

“We’re pleased by our results this quarter and so far this fiscal year,” said CPPIB president John MacNaughton in a conference call. “But we are well aware that the markets will swing widely and we’ll experience negative periods.”

The CPP lost 1.5% in the fiscal year ending March 31, 2003, but has since rebounded, rising 5.5% in the first fiscal quarter of 2003 and 2.8% in the second quarter.

Total CPP assets at the end of 2003 were $66 billion, consisting of $31 billion in equities managed by the CPPIB and $35 billion in fixed income managed by the federal Department of Finance.

The equity portion of the plan earned a healthy 10% in Q3 while fixed income posted a modest 1.2% return.

Five years ago, the CPP moved to expand its portfolio, at that time consisting almost entirely of fixed income assets.

“Since then, we’ve diversified into private equities and real estate and have designed our own passive portfolio,” says MacNaughton. “Investing in public and private equities is part of our strategy to further diversify the CPP portfolio beyond the traditional fixed income investments.”

A fixed income strategy would be unlikely to generate sufficient returns to sustain the CPP over the long term, he added. Currently, CPP benefits are paid entirely from contributions. Investment income won’t be needed to pay benefits until 2022, it’s estimated.

Next month, the CPPIB will announce details of its active overlay program, a plan to hire external investment managers to help manage the passive portion of the CPP portfolio.

“Each firm selected will be managing the equivalent of a $500 million portfolio and compensation will be performance based,” MacNaughton says.

The board is also working on finding a replacement for Mark Weisdorf, vice-president of private market investments, who resigned in December. An announcement is expected in the spring. Meanwhile, Tom Tutsch will serve as interim vice-president.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com