The CPP fund ended the first quarter of fiscal 2012 on June 30, 2011, with net assets of $153.2 billion, an increase of $5.0 billion from the previous quarter ended March 31, 2011.
The increase in net assets this quarter resulted from $1.3 billion of investment income, generated primarily from private assets in the portfolio, and $3.8 billion in excess CPP contributions. The investment income for the quarter represents a 0.9% return.
“Results for the quarter demonstrate our long-term global investment strategy in action, including initiatives to further enhance the CPP fund’s holdings in private market investments,” said David Denison, president and CEO of the Canada Pension Plan Investment Board (CPPIB). “While major equity indices were down this quarter, the fund’s private equity holdings and real estate portfolio helped deliver positive results overall.”
However, steep declines on global stock markets in the last three weeks will no doubt have an impact on the fund’s second-quarter results, as more than 50% of its portfolio is made up of stocks, said Denison.
But the size and long-term focus of the board mean that it can benefit from depressed stocks and tighter credit markets during periods of economic uncertainty, he added. The CPPIB hopes to take advantage by finding bargains and ramping up its private investments in infrastructure, real estate and other sectors.
“We’re more than willing to take advantage of our comparative strengths as an investor during these times,” Denison said in an interview after the board announced the increase in its latest quarterly assets.
“We think as others—whether out of neccessity, or fear or momentum—are driven to be sellers of assets, this is the time we can step in as a buyer.”
Recent moves by the board to aggressively pursue opportunities in private equity, real estate and infrastructure helped the fund end the first quarter of its fiscal 2012 year with net assets up 18% year over year.
Five and 10-year returns
For the five-year period ended June 30, 2011, the CPP fund has generated an annualized investment rate of return of 4.0%, or $24.7 billion of investment income. For the 10-year period ended June 30, 2011, the fund has generated $53.0 billion in investment income, reflecting an annualized 6.0% rate of return.
Long-term sustainability
The Chief Actuary of Canada conducts a financial review of the CPP every three years. In the latest triennial review, completed in November 2010, the Chief Actuary reaffirmed that the CPP remains sustainable at the current contribution rate of 9.9% throughout the 75-year period of his report. The report also indicates that CPP contributions are expected to exceed annual benefits paid until 2021, providing a 10-year period before a portion of the investment income from the CPPIB will be needed to help pay pensions.