CPP Fund ends third quarter at $108.9 billionFebruary 13, 2009
CPP Fund ends third quarter at $108.9 billion
TORONTO, ON (February 13, 2009): The CPP Fund ended the third quarter of fiscal 2009 on December 31, 2008 with assets of $108.9 billion, compared to $117.4 billion at the end of the second quarter of fiscal 2009. The Fund’s decline for the quarter reflects an investment return of negative 6.7 per cent or negative $7.9 billion.
For the nine-month period ended December 31, 2008, the CPP Fund declined by $13.8 billion after operating expenses. The decline consisted primarily of an investment return of negative 13.7 per cent or negative $17.4 billion, offset by CPP contributions of $3.7 billion.
The CPP Investment Board reflects its long investment horizon by regularly reporting rolling four-year performance. For the four-year period ended December 31, 2008, the CPP Fund has generated an annualized investment rate of return of 3.5 per cent which has resulted in $10.2 billion of investment income for the Fund over the four years. For the same period the total value of the Fund (including CPP contributions) has increased by $31.7 billion. Since inception the Fund has delivered $30.1 billion in investment income net of operating expenses, for a 5.1 per cent annualized investment rate of return since April 1, 1999.
“Sharp declines in global equity markets, especially in October and November, negatively impacted our results for the quarter,” said David Denison, President and CEO, CPP Investment Board. “However, looking beyond these short-term results, we continue to believe that our long investment horizon, steady cash inflows and broadly diversified portfolio will generate the longer-term results necessary to deliver on our multi-generational mandate. The funding structure of the CPP means that it is able to weather an extended market downturn and the assets we are managing today are not required to help pay pensions for another 11 years.”
“While current market conditions are creating near-term portfolio declines, they are also providing us with long-term investment opportunities,” said Mr. Denison. “Since we are not forced to sell assets in these market conditions to pay current benefits, we instead are well-positioned to acquire assets at attractive prices. As we assess potential new investments in this market, we are continuing to make decisions based upon our disciplined risk/return analytical framework.”
Performance and Asset Mix
The Fund’s investment return of negative 6.7 per cent, or negative $7.9 billion, for the third quarter accounted for most of the Fund’s $8.5 billion decline over the period. The quarter also saw an outflow of $0.6 billion as part of the CPP Investment Board’s cash management role for the CPP. The CPP Fund routinely receives inflows of CPP contributions well in excess of benefits during the first part of the calendar year, and then returns a portion of those funds for benefit payments during the latter part of the calendar year.
The primary factor affecting performance in the quarter was the sharp decline in public equity markets. In Canada the S&P/TSX dropped 23.5 per cent, while globally the S&P 500 declined 22.5 per cent, the FTSE was down 9.6 per cent and the DAX and Nikkei dropped 17.5 per cent and 21.3 per cent respectively. “While we have adjusted our short-term tactics in light of cyclical changes in the markets, we believe our investment strategy and our weighting to key asset classes continue to be appropriate for a fund with as long a time horizon as the CPP Fund,” said Mr. Denison. “Over the long term this investment approach will deliver the returns required to help sustain the CPP.”
Consistent with the CPP Fund’s long-term strategic portfolio design, at December 31, 2008, equities represented 57.5 per cent of the investment portfolio or $62.7 billion. This consisted of 42.2 per cent public equities valued at $46.0 billion, and 15.3 per cent private equities valued at $16.7 billion. Fixed income, including bonds, money market securities, and other debt represented 27.8 per cent of the portfolio or $30.3 billion. Inflation-sensitive assets represented 14.7 per cent or $15.9 billion. Of those assets, 7.1 per cent consisted of real estate valued at $7.7 billion, 4.2 per cent was inflation-linked bonds valued at $4.6 billion, and 3.4 per cent was infrastructure valued at $3.6 billion. At December 31, 48.7 per cent of the fund or $53.1 billion was invested in Canada, while 51.3 per cent or $55.8 billion was invested globally.
Following the successful CPP reforms of 10 years ago, the CPP Fund was created to help partially pre-fund future pensions. According to the Chief Actuary of Canada’s 2007 report, CPP contributions are expected to exceed annual benefits paid through to the end of 2019, providing an 11-year period before a portion of the investment income is needed to help pay CPP benefits. The report indicates that because of these steady net inflows and because investment income is not required to help pay pensions until 2020, the CPP Fund is expected to grow without drawdowns between now and then. Beyond 2020, the report indicates that the Fund will continue to grow, but at a somewhat slower rate. The Chief Actuary’s 2007 report projects that the CPP, as constituted, is sustainable throughout the 75-year period of the report.
CPP Investment Board
The CPP Investment Board is a professional investment management organization that invests the funds not needed by the Canada Pension Plan to pay current benefits on behalf of 17 million Canadian contributors and beneficiaries. In order to build a diversified portfolio of CPP assets, the CPP Investment Board invests in public equities, private equities, real estate, inflation-linked bonds, infrastructure and fixed income instruments. Headquartered in Toronto, with offices in London and Hong Kong, the CPP Investment Board is governed and managed independently of the Canada Pension Plan and at arm's length from governments. At December 31, 2008, the CPP Fund totaled $108.9 billion. For more information, please visit www.cppib.ca.
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