The Canada Pension Plan (CPP) fund reported a 1.1% gross investment return for its portfolio during the first quarter of its 2014 fiscal year.
The fund closed the quarter, which ended on June 30, 2013, with net assets of $188.9 billion—compared with $183.3 billion at the end of the previous quarter. The $5.6-billion increase consisted of $1.9 billion in net investment income after operating costs and $3.7 billion in net CPP contributions.
“Overall, we would characterize the quarter as relatively turbulent compared to recent reporting periods,” says Mark Wiseman, president and CEO of the CPP Investment Board (CPPIB). “Interest rates rose significantly as bond markets fell, while volatility increased across major equity markets producing mixed returns.”
The CPP’s asset mix for the period ending June 30, 2013, consisted of equities (almost 50%), fixed income (more than 33%) and real assets (almost 17%).
Quarter highlights
During the first quarter, the fund entered into an agreement with Calgary-based TORC Oil & Gas Ltd. for a $170-million private placement that would enable TORC to acquire assets in Saskatchewan and convert to a dividend-paying model.
Another highlight from that quarter was the CPPIB’s agreement to acquire a 27.6% interest in one of Brazil’s major shopping centre companies, Aliansce Shopping Centers S.A., for an equity amount of more than $496 million.
The CPPIB also agreed to commit an additional $413 million of equity to its China logistics joint venture with Goodman Group, Goodman China Logistics Holding. This increases the CPPIB’s committed equity allocation to $1.24 billion.
Additionally, during that period, the fund formed two joint ventures. One was a regional mall joint venture with Ivanhoé Cambridge, in which Ivanhoé Cambridge acquired a 50% interest in Carrefour de l’Estrie from the CPPIB. The fund will continue to own 50% of Carrefour de l’Estrie, the largest shopping centre in Quebec’s Eastern Townships.
The other joint venture is a partnership with Hermes Real Estate Investment Management Ltd., on behalf of the BT Pension Scheme (BTPS), that will initially include eight London office assets from BTPS’s existing portfolio.
Long-term outlook
At the current contribution rate of 9.9%, the CPP will be able to meet its pension obligations for the next 75 years, according to the Chief Actuary of Canada’s latest triennial review, which was released in November 2010.
The Chief Actuary’s projections are based on the assumption that the fund will attain a 4% real rate of return, which takes inflation into account.
The CPPIB’s 10-year annualized nominal rate of return of 6.9%, or 5% on a real rate of return basis, is above the Chief Actuary’s prospective 4% real rate of return assumption.
The Chief Actuary’s report also shows that CPP contributions are expected to exceed annual benefits paid until 2021, when a portion of the investment income from the CPPIB will be needed to help pay pensions.
The Chief Actuary is currently conducting a triennial review of the CPP and is expected to release his report in late 2013.
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