Diversification Steers Canadian Pension Giant’s Ship into the Black

CEO Machin expects the next few years to be ‘much more challenging’ for investments.

Canada’s huge pension fund saw a small gain during a period where others lost money, changing up its game as it prepares for a future with lower returns.

A 3.6% return for the first nine months of the Canada Pension Plan Investment Board’s fiscal year saw its assets grow to C$368.5 billion ($277.6 billion) at the end of 2018 thanks to private and global investments in countries whose currencies strengthened against a depreciating Canadian dollar, said Mark Machin, the fund’s president and chief executive officer.

He added that the board’s diversified portfolio helped steer the fund away from the year’s equity volatility, partly caused by the Federal Reserve’s interest rate hikes and trade conflict between the US and China. Many an investor in 2018 had either poor or negative returns.

“Broad declines in global public equity markets created a challenging investment environment during the quarter, however our net income increased during the downturn, underscoring the Fund’s resiliency and ability to weather difficult conditions,” said Machin.

The variety of assets in the fund’s investment portfolio also helped its five- and 10-year returns perform well, at 9.1% and 8.2%.

The fund is also looking great 75 years from now, according to the Office of the Chief Actuary of Canada, which studies the board’s 75-year sustainability rate every three years. For that period, the audit expects the fund to average 3.9% per year.

As the global economy gets later and later in the current cycle, investors are readying themselves for smaller returns than recent years have provided. Machin is no different, but the previous quarter indicates that the Canada retirement organization is a little earlier to the party than its peers.

“I think it’s going to be much more challenging for the next few years,” he said in an interview with Reuters, noting that it will be a “similar story” no matter the space investment professionals look to allocate. “There’s a large amount of capital in the world competing for assets at the same time.”

The fund’s asset mix as of Dec. 31, 2018, included 31.9% public equites, 25.4% real assets, 24.1% private equities, and 22.2% government bonds.

The Canada Pension Plan Investment Board could not provide the individualized performance of each asset class.

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