CPP reports slower, but healthy growth

(May 19, 2005) The total portfolio for the Canada Pension Plan (CPP) has grown to $81.3 billion, as of the end of March, an increase of $10.8 billion on the year with an investment gain of $6.3 billion.

Performance from the CPP Investment Board (CPPIB) lagged last year, with an 8.5% rate of return, compared to 17.6% in fiscal 2004, when total investment earnings were $10.3 billion.

Fixed income investments contributed $1.6 billion to the total return, compared to $3.1 billion in 2004. The rate of return on bonds for 2005 was 4.6%, down from 8.7% in 2004.

Cooler global equity markets dragged on the rest of the portfolio. Equity and real return assets generated income of $4.7 billion for an 11.6% rate of return, down from 2004’s 31.7% rate, which earned $7.2 billion.

At the end of the fiscal year, the CPP reserve fund portfolio included $45.7 billion worth of publicly traded equities, accounting for 56.2% of the portfolio. Fixed income investments made up 39% of the portfolio, at a value of $31.7 billion. Private equity holdings of $2.9 billion made up 3.6% of the total, while real estate and infrastructure accounted for 1.2%, or $1 billion.

“The results of the last five years show that we are on track to meet our long term goal of helping to sustain the pensions of 16 million Canadians for the long term,” said David Denison, president and CEO, CPP Investment Board. “We are now part way through our diversification program for the reserve fund and the results of the past year reflect its current composition. Going forward, we will be taking steps to more broadly diversify the portfolio beyond the current asset mix by increasing our holdings in real estate, infrastructure and other real return assets.”

Actuarial projections require the CPP reserve fund to grow by 4.1% on an inflation adjusted basis to sustain the plan over the long term. The past five years has seen growth of 4.48%.

The three-year transfer of bonds from the federal Department of Finance will be complete on April 1, 2007. The one-year transfer of the cash operating reserve will finish in August 2005.

The CPP will need not to dip into its investment income before 2022, according to projections, as contributions should exceed benefits until then.

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