CPP fund posts impressive year

Investment managers of the nation’s pension plan have announced the CPP earned a handsome return in the most recent fiscal year, nearly doubling last year’s gains on a percentage basis.

For the 12 months ended March 31, the CPP fund posted an investment return of 15.5%, compared to 8.5% in the previous year. The CPP also topped the median return for Canadian pension plans, which earned 14.9% over the same period.

In dollar terms, the fund grew by $16.7 billion, including $3.6 billion in surplus contributions, to $98 billion.

The strong performance of the Canadian equity markets were the primary driver of growth, accounting for 85% of returns. The Canadian equity portion of the portfolio earned a whopping 29.9% on the year.

Overall, the target allocation for all equities is 60% of the portfolio, with fixed income and cash accounting for 30% and 10% respectively. The fund does not yet match that target allocation, but “made good progress in achieving this near-term asset mix,” according to a press release.

The fund is slightly overweight in equities at present, with stocks making up 63% of the portfolio. That includes $4.4 billion in private equity investments, or 4.5% of the fund.

The fixed income component is a little lighter than the target, making up 28.3% of the fund, or $27.8 billion. The fund holds an additional $8.5 billion in real return assets, including $4.2 billion in real estate and inflation-linked bonds totaling $4 billion. Infrastructure investments totaled $350 million or 0.4% of the fund.

“Our key investment goal this year was to further diversify the portfolio by risk/return attributes and geography,” said David Denison, president and CEO, CPP Investment Board. “As a result we increased our investments in real estate, inflation-linked bonds and infrastructure to $8.5 billion or 8.7% of the overall portfolio from just $1 billion or 1.2% at the beginning of the year.”

Denison says the fund will increase its foreign holdings to reduce its over-exposure to the Canadian market, which currently totals $63 billion.

“We have also increasingly diversified the fund by geography during the past year and will continue to do so into the future,” Denison said in a conference call, citing the end of the foreign content rule and the small size of Canada’s stock market.According to the latest actuarial projections, contributions to the CPP will exceed benefits paid until 2022, giving the CPP Investment Board another 16 years before its funds will be needed.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com