The CPP Investment Board, formerly the Canada Pension Plan Investment Board (CPPIB), reported that it ended its fiscal year 2017 with net assets of C$316.7 billion ($235.5 billion), up from C$278.9 billion at the end of fiscal year 2016. That translates to a gross investment return of 12.2% for the year, or 11.8% net of all costs.
“This was a strong year for the CPP Fund as we achieved one of the largest yearly increases in assets since the inception of CPPIB,” said Mark Machin, CEO of the CPPIB in a statement.
The biggest gains for the year came from CPPIB’s investments in equities and real assets. It earned 19.2% from its Canadian public equities, compared to a loss of 6.4% in 2016, and saw a return of 18.9% from both foreign and emerging pubic equities, which had lost 2.8% and 8.7% respectively the previous year. Foreign private equities returned 15.8%, compared to gains of 8.8% in 2016; and natural resources and agriculture investments rose 16.8%, compared to a loss of 7.7% last year.
CPPIB is a professional investment management organization that invests the funds not needed by CPP to pay current benefits on behalf of 20 million contributors and beneficiaries.
For the five-year period, the net nominal return was 11.8%, contributing C$129.6 billion in cumulative net income to the fund after all CPPIB costs. In the 10-year period up to and including fiscal 2017, CPPIB contributed C$146.1 billion in cumulative net income to the fund after all CPPIB costs. Since CPPIB’s inception in 1999, it has contributed C$194.1 billion.
“It is noteworthy that our 11.8% five-year return mirrors our annual return,” said Machin. “We believe this is a strong indicator of our ability to generate steady, sustainable returns for generations of beneficiaries to come.”
CPPIB’s 10-year annualized net nominal rate of return was 6.7%, or 5.1% on a net real rate of return basis, which was above the Chief Actuary’s assumption for the same period. The real rate of return is reported net of all CPPIB costs to be consistent with the Chief Actuary’s approach.
The Office of the Chief Actuary (OCA) is an independent unit that provides a range of actuarial valuation and advisory services to the government of Canada. The OCA provides checks and balances on the future costs of the different pension plans and social programs that fall under its responsibility, including the CPP.
In its most recent triennial review, released in September 2016, the Chief Actuary of Canada reaffirmed that the CPP remains sustainable at the current contribution rate of 9.9% throughout the forward-looking 75-year period covered, as of December 31, 2015. The Chief Actuary’s projections are based on the assumption that the fund’s prospective real rate of return, which takes inflation into account, will average 3.9% over 75 years.
Machin said that while the fund is building a portfolio that will “help ensure the long-term sustainability of the CPP,” he also said “our portfolio is designed to withstand short-term market uncertainty.”
During fiscal year 2017, CPPIB said it continued to execute its long-term investment strategy to diversify the CPP Fund across multiple asset classes and geographies. Through four investment departments, it said it completed 182 global transactions.
“The composition of our highly diversified long-term portfolio continues to position us well, allowing us to take advantage of the strong performance of global stock markets this year, amid significant global geopolitical developments,” said Machin. “Our diverse investment programs generated strong earnings, while fixed-income investments remained relatively flat.”