The Canada Pension Plan Investment Board said it lost 4.2% in its latest quarter, subtracting $23 billion from the fund’s assets.
It could have been worse: The three months ended June 30 were awful for most investors. According to Royal Bank of Canada’s RBC I&TS All Plan Universe, defined benefit pension plan assets fell 8.6%, tied with the third quarter of 2008 for the biggest decline in the 28 years RBC has started track the performance of the Canadian plan.
The S&P Global LargeMidCap Index, a measure of stocks that CPPIB uses as 85% of its benchmark benchmark portfolio, fell nearly 13.5% in the quarter. The FTSE Canada Universe All Government Bond Index, the remaining 15% of the benchmark, fell almost 6%. Combined, this means CPPIB beat a benchmark of negative 12.4% by more than eight percentage points.
CPPIB ended the quarter with assets of $523 billion, compared to $539 billion at the end of the previous quarter. Investment losses were offset by $7 billion in contributions from the Canada Pension Plan.
In the early days of the COVID-19 pandemic, when global markets tumbled, CPPIB’s asset mix lessened the pain and the pension fund manager lost far less money than a normal investor in the stock market However, the CPPIB often follows when public equity markets rise rapidly, as it did in several recent quarters when investors shrugged off their pandemic fears.
Now, we’re back in bear markets and CPPIB is outperforming them.
“Financial markets experienced the most challenging first six months of the year in half a century, and the fund’s fiscal first quarter was not immune to such a widespread decline,” said John Graham, CEO of CPPIB , in a statement accompanying the returns. “The uncertain business and investment conditions we saw in the previous quarter continue, and we expect this turbulence to persist throughout the fiscal year.”
CPPIB said its loss was driven by the fall in public equity markets, but investments in private equity, credit and real estate also contributed “modestly”. The CPPIB also lost money in fixed-income investments such as bonds due to higher interest rates imposed by central banks to fight inflation.
Gains from external portfolio managers, quantitative trading strategies and energy and infrastructure investments contributed positively. CPPIB also posted foreign exchange gains of $3.1 billion as the Canadian dollar weakened against the US dollar. (Most of CPPIB’s investments are held outside of Canada, but it reports results in Loonies.)
The Canada Pension Plan, founded in 1966, is the main national retirement program for working Canadians. The government created the CPPIB in 1999 to professionally manage the plan money. Over time, CPPIB has adopted active management and its mix of stocks, bonds, real estate, infrastructure, private equity and other specialty investments has outperformed the public markets and its benchmark portfolio.
Although the CPPIB reports quarterly, it notes its multi-generational mandate and likes to emphasize its long-term returns. The plan’s five-year net return, net of investment costs, was 8.7% through June 30; the 10-year net yield was 10.3%.
OICP’s annualized return for the 10 years ended September 30 was, at 11.6%, the highest 10-year return in its history.
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