Canada’s CPPIB Returns 2.3% in Q2 Fiscal 2020

Total asset value of fund rises to C$409.5 billion.

The Canada Pension Plan Investment Board (CPPIB), Canada’s largest pension fund, reported that its investment portfolio returned 2.3% net of costs during the second quarter of fiscal 2020. That raised its total net asset value to C$409.5 billion ($307.4 billion) from C$400.6 billion at the end of the previous quarter.

“CPPIB continued to deliver steady returns this quarter,” Mark Machin, CEO of CPPIB said in a statement. “During this time, our teams continued to lay the groundwork for future value creation.”

The fund also reported 10-and five-year annualized net nominal returns of 10.2% and 10.3%, respectively.

The C$8.9 billion increase in assets during the quarter consisted of C$9.2 billion in net income after all CPPIB costs, minus C$300 million in net Canada Pension Plan (CPP) cash outflows. CPPIB said it typically receives more contributions than required to pay benefits during the first part of the calendar year. This is partially offset by benefit payments exceeding contributions in the final months of the year. On an annual basis, contributions continue to exceed outflows, said the fund.

For the six-month fiscal year-to-date period ending Sept. 30, the fund increased C$17.5 billion, C$13.4 billion of which was net income after all CPPIB costs. There was also C$4.1 billion in net cash inflows. The portfolio returned 3.4% after all CPPIB costs during the six-month period.

The portfolio’s asset allocation as of the end of September was 31.9% in public equities (20.3% foreign, 9.6% emerging, 2.0% Canadian), 24.2% in private equities (20.8% foreign, 3.1% emerging, 0.3% Canadian), and 22.2% in government bonds. Real estate allocation was 11.6%, 10.3% in credit, 8.6% in infrastructure, 2.3% in energy and resources, and 1.3% in power and renewables. The fund counts external debt issuance, and cash and absolute return strategies as -8.3% and -4.1%, respectively, against its asset allocation. 

During the quarter, the CPPIB released its 12th annual Report on Sustainable Investing, which details the fund’s activities identifying and addressing ESG factors.

“Embedding ESG factors more deeply into our investment process advances our investment objectives,” Machin said. “Addressing risks and opportunities resulting from climate change and promoting the effectiveness of boards of our portfolio companies, for example, help us improve investment returns over the long run.”

The fund also said the Office of the Chief Actuary of Canada reaffirmed that, as of Dec. 31, 2015, the base CPP remains sustainable at the current contribution rate of 9.9% throughout the forward-looking 75-year period. The projections are based on the assumption that over the 75 years the base CPP investments will earn a 3.9% average annual rate of return above the Canadian inflation, after all investment costs and operating expenses.

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