Canada Pension Plan Investment Board Posted Lackluster 3.6% Return in Third Quarter

The Canada Pension Plan Investment Board (CPPIB) posted a so-so 3.6% return net of costs during the third quarter of its fiscal 2020 to reach net assets of C$420.4 billion ($318.2 billion), up from C$409.5 billion at the end of the previous quarter.

The performance surpassed the previous quarter’s return of 2.3% net of costs, as well as the year-ago third quarter return of 1.1%.

The fund reported that the C$10.9 billion increase in assets for the quarter consisted of C$14.5 billion in net income after all costs, minus C$3.6 billion in net Canada Pension Plan (CPP) cash outflows. It also said that on an annual basis, contributions to the fund continue to exceed outflows.

“All of our investment departments contributed to a very solid quarter, advancing the fund,” Mark Machin, president and CEO of CPPIB, said in a statement. “Financial results and operational performance across CPP Investments’ global active programs remain strong, although the relative value of the Canadian dollar, against several foreign currencies, affected overall results.”

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The fund’s five-year and 10-year annualized net nominal returns were 10.4% each, while its five-year and 10-year and annualized net real returns were 8.4% and 8.5%, respectively.

The fund grew by C$28.4 billion for the nine-month fiscal year-to-date period, which consisted of C$27.9 billion in net income after all costs, plus C$500 million in net CPP cash inflows. It had a net return of 7.1% after all costs during the period.

The asset allocation for the fund as of the end of 2019 was 30.7% in public equities; 24.9% in private equities; 11.1% in credit investments; 11% in real estate; 10.5% in government bonds, cash, and absolute return strategies; 8.3% in infrastructure; and 3.5% in other real assets.

The Office of the Chief Actuary of Canada conducts an independent review of the sustainability of the fund every three years. In its most recent review, the office said that, as of the end of 2018, the fund continues to be sustainable over the 75-year projection period at the current legislated contribution rates. The Chief Actuary’s projections are based on the assumption that the base account will earn an average annual real rate of return of 3.95% above the rate of Canadian consumer price inflation, after all investment costs and operating expenses through the year 2093. The corresponding assumption is that the additional CPP account will earn an average annual real rate of return of 3.38%.