The Canada Pension Plan Fund (CPP) returned 4.0% net of costs for the third quarter of fiscal 2018, with net assets rising to C$337.1 billion ($268.3 billion), a C$8.9 billion gain from the end of the previous quarter.
Canada’s largest pension fund earned C$13.1 billion in net income after all Canada Pension Plan Investment Board (CPPIB) costs, minus C$4.2 billion in net CPP cash outflows, which are used to pay CPP benefits.
“Exceptional performance across public equity markets internationally during the third quarter helped bring the CPP Fund to a new high,” said Mark Machin, CEO of CPPIB, in a release. “Our emphasis on diversification contemplates the role private assets play in strengthening the resiliency of portfolios over extended durations.”
The CPP Fund said it often receives more contributions than required to pay benefits during the first part of the calendar year, which is partially offset by benefit payments exceeding contributions in the final months. It also said that contributions to the fund continue to exceed outflows.
For the nine-month fiscal year-to-date period, the CPP Fund increased by C$20.4 billion, which consisted of C$21.2 billion in net income after all CPPIB costs, minus C$800 million in net CPP cash outflows. The portfolio delivered a net return of 6.7% after all CPPIB costs during the period.
The portfolio earned five- and 10-year annualized net nominal returns of 12.1%, and 7.4% respectively, net of all costs.
“Extreme market movements resulting in short-term upswings and declines, as we’ve seen recently, illustrate why we emphasize 10-year returns,” said Machin, “which is well above the chief actuary’s assumption to help ensure the sustainability of the fund.”
In its latest triennial review released in September, the chief actuary of Canada said that CPP remains sustainable at the current contribution rate of 9.9% throughout the forward-looking 75-year period covered by the actuarial report. The projections are based on the assumption that the fund’s prospective real rate of return, which accounts for the impact of inflation, will average 3.9% over 75 years.
The CPP said the chief actuary’s report confirmed that the fund’s performance was surpassing projections for the 2013 to 2015 period, with investment income 248%, or C$70 billion, higher than expected.