The investment portfolio of the C$400.6 billion ($300.9 billion) Canada Pension Plan Investment Board (CPPIB) reported a mere 1.1% return net of costs for the first quarter of fiscal 2020 ended June 30, but had 10.5% annualized returns for the past five and 10 years.
The quarterly gain added C$8.6 billion to the fund’s asset value, which consisted of C$4.1 billion in net income after all CPPIB costs, and C$4.5 billion in net contributions.
“CPPIB’s investment programs performed well in the first quarter, achieving solid net income in local-dollar terms,” Mark Machin, CEO of CPPIB, said in a statement. “At the same time, the strengthening of the Canadian dollar against all major currencies in June dampened our returns overall, as the market responded to lower interest rate expectations in the US and Europe.”
The fund’s Total Portfolio Management department was the top performer, said CPPIB, which was attributed in part to gains in fixed income investments. Private equity and active equities also delivered positive results, which was bolstered by the improved sentiment in global equity markets.
The fund said that every three years, the Office of the Chief Actuary of Canada conducts an independent review of the sustainability of the CPP covering the next 75 years. In the most recent triennial review, CPPIB said the chief actuary reaffirmed that as of the end of 2015, the base CPP remains sustainable at the current contribution rate of 9.9% for the next three quarters of a century.
The chief actuary’s projections are based on the assumption that the base CPP investments will earn an average annual rate of return of 3.9% above the rate of inflation, after all investment costs and operating expenses through the year 2090.
Among the first quarter investments, CPPIB agreed to acquire UK-based family entertainment company Merlin Entertainments for 455 pence ($5.50) per share in cash. It also closed a deal to invest £95 million ($114.8 million) in Visma, a provider of business management software and services in the Nordic and Benelux regions. The investment brought the fund’s total investment in the company to £200 million, which translates to a 4.7% ownership stake.
The CPPIB also signed a memorandum of understanding with Piramal Enterprises to co-sponsor a renewables investment trust that will acquire operating renewable assets in India. It said it will hold a majority stake, with an initial target investment of approximately C$300 million, with Piramal and other long-term investors holding the remaining interest.