CPPIB Returns 8.9% in Fiscal 2019 | Chief Investment Officer

The Canada Pension Plan Investment Board (CPPIB) reported that the Canada Pension Plan (CPP) returned 8.9% net of all costs for the fiscal year that ended March 31, outperforming its benchmark’s return of 6.6%, and ending the year with net assets of C$392.0 billion ($290.9 billion), compared to C$356.1 billion at the end of fiscal 2018.

The C$35.9 billion increase in assets consisted of C$32.0 billion in net income after all CPPIB costs, and C$3.9 billion in net CPP contributions. The CPPIB invests the funds not needed by the CPP to pay current benefits for 20 million contributors and beneficiaries.

The fund, which includes the combination of both the base CPP and additional CPP accounts, also reported five- and 10-year annualized net nominal returns of 10.7% and 11.1%, respectively.

“CPPIB continues to deliver strong absolute and relative returns, and our robust 10-year performance demonstrates our long-term contribution to the sustainability of the CPP,” Mark Machin, CPPIB’s chief executive officer and president, said in a release. “We have gradually built a diversified, global investment platform and focused on executing our multi-year strategy—these are key drivers of our financial performance and our future success.”

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Foreign private equities were the portfolio’s top-performing assets for the portfolio, returning 18.0% for the year, followed by real assets infrastructure, and emerging private equities, which earned 14.0% and 11.8%, respectively, for the year.

Credit investments returned 8.7%, while Canadian and foreign public equities returned 7.9% and 7.5%, respectively. Real estate returned 6.4%, Canadian private equities earned 5.7%, while marketable and non-marketable government bonds returned 5.3% and 4.8%, respectively. The only asset class that didn’t earn positive returns was emerging public equities, which lost 1.7% for the year.

“The role of diversification came through clearly this year, and we were encouraged to see nearly all investment departments contributed positively to our results,” said Machin. “CPPIB’s investment teams also took advantage of our international reach and competitive strengths to pursue select transactions as well as explore new areas of growth.”

The portfolio’s largest asset allocation was public equities, which made up 33.2% of all investments, although this was down from 38.8% for the fiscal year that ended March 31, 2018. Of this amount, 21.1% was allocated to foreign pubic equities, 10.1% to emerging public equities, and 2.0% to Canadian public equities. Real assets made up 23.5% of the portfolio, with 12.9% of that going to real estate. Government bonds comprised 21.6% of the investments, while private foreign equities accounted for 17.3%.

CPPIB said its portfolio management strategy benefits from rising public equity markets, while alternative assets and private investments help moderate the impact of significant market drops. It also said it diversified the portfolio by the return-risk characteristics of various assets and countries during fiscal 2019.

At SALT: CPPIB Goes Long in Emerging Markets

Tags: Canada Pension Plan Investment Board, Mark Machin, Pension, Returns

The trend of falling life expectancies seen over the past few years in the UK has continued into this year, according to KPMG, which has declared a “lost decade” of life expectancy improvements as the mortality rate in 2019 is expected to fall back to levels not seen in 10 years.

According to KPMG’s 2019 Pensions Accounting Survey, the median life expectancies for retirees aged 65 declined by 0.2 years to 86.9, while life expectancies for 45-year-olds fell 0.1 years to 88.4. That means that a current retiree aged 65 is expected to survive another 21.9 years on average, while future retirees currently aged 45 are expected to live another 23.4 years from the age of 65. The median gap between current retiree and future retiree life expectancies has remained at 1.4 years for a 20-year projection, according to the report.

The research is based on trends in best-estimate assumptions from 212 clients with defined benefit pension plans reporting under IFRS, UK GAAP, or US GAAP at the end of last year.

“By the end of 2019, assumed life expectancies will be back to levels last seen in 2009,” Naz Peralta, KPMG’s pensions director, said in a release. “This ‘lost decade of life expectancy’ is largely due to the slowing rate of future mortality improvements as projected by the Continuous Mortality Investigation Bureau (CMIB) over the past four years.”

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The CMIB, which is supported by the Institute and Faculty of Actuaries, continually updates its research and produces annual updates of the CMI projection model. During the past few years, these updates have projected a slowing rate of future mortality improvements.

KPMG attributed this trend to the fact that 76% of companies adopted the latest CMI projections, which reflected a decrease in the expected rates of future improvements in mortality. There was a new parameter added to the CMI 2018 model, called the initial addition parameter. The parameter is intended to allow users of the model to make adjustments to reflect differences in improvements in a particular sub-population relative to the general population data on which the model is calibrated.

“The initial addition parameter is the second new parameter added in recent years,” said Peralta. “Although these in theory allow companies to tailor their assumptions better, in practice it is likely to cause some confusion due to the complexity and subjectivity involved. We expect many companies will use the default assumptions for these new parameters until they are understood better.”

Global Life Expectancy Improvements Slow Down

Tags: KPMG, life expectancies, Pension, UK