All figures in Canadian dollars unless otherwise noted.
TORONTO, Nov. 10, 2017 (GLOBE NEWSWIRE) -- The CPP Fund ended its second quarter of fiscal 2018 on September 30, 2017, with net assets of $328.2 billion, compared with $326.5 billion at the end of the previous quarter. The $1.7 billion net increase in assets for the quarter consisted of $2.3 billion in net income after all CPPIB costs, less $0.6 billion in net Canada Pension Plan (CPP) cash outflows. The CPP Fund routinely receives more CPP contributions than required to pay benefits during the first part of the calendar year, partially offset by benefit payments exceeding contributions in the final months. On an annual basis, contributions to the Fund continue to exceed outflows.
The portfolio achieved 10-year and five-year net nominal returns of 6.9% and 11.8%, respectively, and 0.7% net of all CPPIB costs for the quarter.
For the six-month fiscal year-to-date period, the CPP Fund increased by $11.5 billion consisting of $8.1 billion in net income after all CPPIB costs, plus $3.4 billion in net CPP cash inflows. The portfolio delivered a net return of 2.5% after all CPPIB costs during the period.
“Equities advanced internationally during the quarter moderated by negative Canadian fixed income and foreign currency returns. The Fund delivered a modest return with contributions from all of our major investment programs as our teams pursued a number of select transactions setting the stage for added future growth,” said Mark Machin, President & Chief Executive Officer, Canada Pension Plan Investment Board (CPPIB). “Our broadly diversified investment portfolio continues to generate strong long-term performance results for the Canada Pension Plan and its contributors and beneficiaries.”
The CPP Fund is a global portfolio that holds assets denominated in many foreign currencies. CPPIB generally does not hedge these back to the Canadian dollar. Accordingly, when the Canadian dollar strengthens, as it has in the last six months, the Fund will experience currency losses. As an example, the Canadian dollar strengthened against the U.S. dollar by 6.6% over this period. Conversely, when the Canadian dollar weakens, the Fund will benefit from currency gains. While currency exchange-rate fluctuations may impact Fund results in any given period, we do not expect them to have a significant impact on long-term performance.
Long-Term Sustainability
CPPIB’s 10-year annualized net nominal rate of return of 6.9%, or 5.3% on a net real rate of return basis, was above the Chief Actuary’s assumption of expected performance over this same period. The real rate of return is reported net of all CPPIB costs to be consistent with the Chief Actuary’s approach.
In the most recent triennial review released in September 2016, the Chief Actuary of Canada reaffirmed that, as at December 31, 2015, the CPP remains sustainable at the current contribution rate of 9.9% throughout the forward-looking 75-year period covered by the actuarial report. The Chief Actuary’s projections are based on the assumption that the Fund’s prospective real rate of return, which takes into account the impact of inflation, will average 3.9% over 75 years.
The report confirmed that the Fund’s performance was ahead of projections for the 2013-2015 period as investment income was 248%, or $70 billion, higher than anticipated.
The CPP’s multi-generational funding and liabilities give rise to an exceptionally long investment horizon. To meet long-term investment objectives, CPPIB continues to build a portfolio designed to generate and maximize long-term returns at an appropriate risk level. Accordingly, long-term investment returns are a more appropriate measure of CPPIB’s performance than returns in any given quarter or single fiscal year.
Five and 10-Year Returns1, 2 | ||||||
(for the quarter ending September 30, 2017) | ||||||
Investment Rate of Return (Nominal) | Investment Rate of Return (Real) | Net Income3 | ||||
5-Year Annualized | 11.8% | 10.3% | $133.9 billion | |||
10-Year Annualized | 6.9% | 5.3% | $153.5 billion |
1 After all CPPIB costs.
2 Rates of return are calculated on a time-weighted basis. They reflect the performance of the Investment Portfolio, which excludes the Cash for Benefits Portfolio.
3 Dollar figures are cumulative.
Asset Mix | |||||
For the quarter ending September 30, 2017 | |||||
($ billions) | |||||
$ | % | ||||
Public Equities | |||||
Canadian | 10.6 | 3.2 | |||
Foreign | 99.2 | 30.2 | |||
Emerging | 21.0 | 6.4 | |||
130.8 | 39.8 | ||||
Private Equities | |||||
Canadian | 1.2 | 0.4 | |||
Foreign | 52.4 | 15.9 | |||
Emerging | 7.4 | 2.3 | |||
61.0 | 18.6 | ||||
Government Bonds | |||||
Marketable | 23.5 | 7.2 | |||
Canadian Provincial Non-marketable | 61.0 | 18.6 | |||
84.5 | 25.8 | ||||
19.9 | 6.1 | ||||
Credit Investments | |||||
Real Assets | |||||
Real Estate | 41.0 | 12.5 | |||
Infrastructure | 24.3 | 7.4 | |||
Other1 | 7.9 | 2.4 | |||
73.2 | 22.3 | ||||
External Debt Issuance | -23.3 | -7.1 | |||
Cash and Absolute Return Strategies2 | -18.1 | -5.5 | |||
Investment Portfolio | 328.0 | 100.0 | |||
Cash for Benefits Portfolio | 0.1 | 0 | |||
Net Investments3 | 328.1 | 100.0 |
1 Other consists of Natural Resources and Agriculture investments.
2 The negative balance of $18.1 billion in Cash & Absolute Return Strategies represents the net amount of financing through derivatives and repurchase agreements, and the current net position from Absolute Return Strategies.
3 Excludes non-investment assets (such as premises and equipment) and non-investment liabilities, totalling $0.1 billion for Q2 fiscal 2018. As a result, net investments will differ from the net assets figure of $328.2 billion.
Q2 Investment Highlights:
Private Investments
Real Assets
Asset Dispositions:
Real Assets
Investment highlights following the quarter end include:
About Canada Pension Plan Investment Board
Canada Pension Plan Investment Board (CPPIB) is a professional investment management organization that invests the funds not needed by the Canada Pension Plan (CPP) to pay current benefits on behalf of 20 million contributors and beneficiaries. In order to build a diversified portfolio of CPP assets, CPPIB invests in public equities, private equities, real estate, infrastructure and fixed income instruments. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, São Paulo and Sydney, CPPIB is governed and managed independently of the Canada Pension Plan and at arm's length from governments. At September 30, 2017, the CPP Fund totalled $328.2 billion. For more information about CPPIB, please visit www.cppib.com or follow us on LinkedIn or Twitter.
Disclaimer
Certain statements included in this press release constitute forward-looking statements with respect to CPPIB’s future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as “trend,” “potential,” “opportunity,” “believe,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” and similar expressions. The forward-looking statements are not historical facts but reflect CPPIB's current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations, including available investment income, intended acquisitions, regulatory and other approvals and general investment conditions. Although CPPIB believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and, accordingly, readers are cautioned not to place undue reliance on such statements due to the inherent uncertainty therein. CPPIB does not undertake to publicly update such statements to reflect new information, future events, changes in circumstances or for any other reason. The information contained on CPPIB’s website is not a part of this press release.
For More Information:
Dan Madge Senior Manager, Media Relations T: +1 416 868 8629 dmadge@cppib.com | Mei Mavin Director, Global Corporate Communications T: +44 20 3205 3406 mmavin@cppib.com |