CPP Assets Rise, PE Exposure Declines

The Canada Pension Plan reported C$116.6 billion in assets as of June 30, compared to C$105.5 billion in assets as of March 31. Its private equity portfolio currently stands at C$13.8 billion, or 11.8% of total assets. At the end of March, the private equity portfolio was valued at C$13.4 billion, which represented 14.1% of total assets.

The CPP Fund ended the first quarter of fiscal 2010 on June 30, 2009 at $116.6 billion compared to $105.5 billion at fiscal year-end on March 31, 2009. The $11.1 billion increase in assets this quarter consisted primarily of $7.6 billion in investment income, reflecting a 7.1 per cent rate of return, and $3.5 billion in CPP contributions not needed to pay current pension benefits.

“We are pleased with the $11.1 billion increase in the Fund and the positive 7.1 per cent return for the first quarter,” said David Denison, President and CEO, CPP Investment Board. “At the same time, the negative returns of our past fiscal year and the positive results of this first quarter both need to be viewed within the context of our long-term strategy. We continue to focus on delivering solid returns over the span of multiple years and indeed decades.”

“With no need to use current income to pay benefits for another 11 years and with approximately $28 billion of additional cash inflows anticipated between now and 2019, we will maintain the strategic asset weightings for the portfolio,” said Mr. Denison. “We will also continue to emphasize our strengths as a large, long-term investor to capitalize on investment opportunities we see in current market conditions.”

“Since the primary objective of the CPP Investment Board is to generate long-term investment returns to help sustain the CPP for decades and generations, we measure returns over several longer time frames in addition to the quarter and year-to-date results we release every three months,” said Mr. Denison.

In just over 10 years since the CPPIB began investing in April 1999, the CPPIB has generated $31.8 billion in investment income for the Fund reflecting an annualized rate of return of 4.9 per cent. Another relevant measure is the four-year annualized investment rate of return through June 30, 2009 which was 2.3 per cent representing $6.9 billion in investment income.

Long-term Sustainability
On May 25, 2009, the federal and provincial finance ministers who oversee the Plan confirmed at the conclusion of the Triennial Review that the CPP is financially sound. In July 2009, the Chief Actuary also reaffirmed that the CPP is sustainable throughout the 75-year timeframe of his 2007 report; the Chief Actuary will publish a new projection for the CPP in 2010.

The Chief Actuary of Canada estimates that a 4.2 per cent real rate of return, or approximately 6.2 per cent on a nominal basis, over the span of the 75-year timeframe covered by his 2007 report is required to sustain the plan at the current contribution rate. “Although our four-year results are currently below this long-term rate of return, we believe the CPP Fund will generate returns in excess of this 4.2 per cent threshold over its long investment horizon,” said Mr. Denison.

Asset Mix
At June 30, 2009, equities represented 57.5 per cent of the Fund or $67.1 billion. That amount consisted of 45.7 per cent public equities valued at $53.3 billion and 11.8 per cent private equities valued at $13.8 billion. Fixed income, which includes bonds, money market securities, other debt and debt financing liabilities represented 29.2 per cent or $34.0 billion. Inflation-sensitive assets represented 13.3 per cent or $15.5 billion. Of those assets, 5.9 per cent consisted of real estate valued at $6.9 billion, 3.5 per cent was inflation-linked bonds valued at $4.0 billion, and 3.9 per cent was infrastructure assets valued at $4.6 billion.

CPP Investment Board
The CPP Investment Board is a professional investment management organization that invests the funds not needed by the Canada Pension Plan to pay current benefits on behalf of 17 million Canadian contributors and beneficiaries. In order to build a diversified portfolio of CPP assets, the CPP Investment Board invests in public equities, private equities, real estate, inflation-linked bonds, infrastructure and fixed income instruments. Headquartered in Toronto, with offices in London and Hong Kong, the CPP Investment Board is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At June 30, 2009, the CPP Fund totaled $116.6 billion. For more information about the CPP Investment Board, please visit www.cppib.ca.