Canada Pension Plan fund posts strong returns to end 2012
The fund that invests on behalf of more than 18 million contributors and beneficiaries of the Canada Pension Plan has reported gross investment returns of three per cent in its fiscal 2013 third quarter.
"We continued to see solid returns this quarter due to strong increases in global public equity markets and income generated by the portfolio's private assets," said CPPIB president and CEO Mark Wiseman said in announcing the fund's results Friday.
"This quarter's results reflect the strength and capabilities of our diversified global platform, as all investment groups delivered gains," said Wiseman, who took the helm at the CPPIB last July following the retirement of David Denison.
Denison, who had taken the reins from the board's first president John MacNaughton in 2005, launched the CPPIB's current active investment strategy aimed at growing the fund to help meet pension obligations even when payouts begin to outnumber contributions on an annual basis.
Since the investment board's creation in 1999, it had been primarily focused on passive investments in stocks and bonds. Wiseman, an early Denison hire and co-architect of the new investment strategy, was executive vice-president of investments and responsible for the fund's global investment program before taking over as chief executive.
The CPPIB said net assets as of Dec. 31 were $172.6 billion, up $2.5 billion from the quarter ended Sept. 30.
The increase in net assets after operating expenses resulted from $5 billion in investment income, offset by $2.4 billion of seasonal cash outflows.
The CPP fund says it routinely receives more CPP contributions than are required to pay benefits in the first part of the calendar year and then remits a portion of those funds for benefit payments in the latter part of the year.
So far this year, the fund has increased by $11 billion, including $9 billion in investment income before operating expenses. That represents a gross investment return of 5.5 per cent in the first nine months of its fiscal year and $2.4 billion in net CPP contributions.
The funds asset mix at the end of December included public and private equities totally $85.4 billion, $57.8 billion of fixed income and real estate and infrastructure assets of $29.6 billion.
Planning for the future
The CPP Investment Board, with headquarters in Toronto and offices in London and Hong Kong, is a professional investment management organization that invests the funds not needed by the Canada Pension Plan to pay current benefits.
In the latest triennial review released in November 2010, the chief actuary of Canada reaffirmed that the CPP remains sustainable at the current contribution rate of 9.9 per cent throughout the 75-year period of his report. That includes the assumption that the fund will attain an annualized four per cent real rate of return.
The 10-year annualized nominal rate of return of the fund currently is 6.7 per cent, although the five-year rate is 3.1 per cent.
The latest chief actuary report also indicates that CPP contributions are expected to exceed annual benefits paid until 2021, providing an eight-year period before a portion of the investment income from the CPPIB will be needed to help pay pensions.