Skip to main content

The Canada Pension Plan Investment Board posted its best-ever annual return – but missed its investment return benchmark by a wide margin, wiping out five years of outperformance.

CPPIB also revealed Thursday that former chief executive Mark Machin, who left after facing criticism for getting his COVID-19 vaccine outside of Canada, received no severance package and had his departure treated as a retirement.

CPPIB said Thursday it posted a 20.4-per-cent return in the fiscal year ended March 31, and closed the year with $497.2-billion in assets. It added $87.6-billion to assets over the course of 12 months.

CPPIB has long compared its results to a “reference portfolio” of passively invested stocks and bonds. In most years, CPPIB’s blend of stocks, bonds, real estate, infrastructure, private equity and other specialized investments tops that passive benchmark, and CPPIB reports a “dollar-value added” figure in the billions, thanks to its active investing style.

Not so in the most recent year, when skyrocketing stock markets created a benchmark return of 30.4 per cent – a full 10 percentage points higher than CPPIB’s performance. That means a dollar-value-added, or DVA, figure of negative $35.3-billion in the fiscal year – or, in other words, CPPIB’s choices of investments subtracted more than $35-billion, versus what would have been produced by a passive portfolio of 85 per cent global stocks and 15 per cent Canadian government bonds. CPPIB closed the year with less than 30 per cent of its portfolio in publicly traded stocks.

The cumulative five-year dollar-value-added figure is now negative $2.8-billion, CPPIB said, despite a return that averaged 11 per cent annually over the period.

“If we compare our longer-term performance to peers both domestically and internationally ... the total returns, from my perspective, have been very strong,” CEO John Graham said in an interview Thursday. “We don’t get fixated on one-year performance. Last year, when the markets were selling off, we had a high DVA number. This year, we had a lower DVA number.”

CPPIB’s March 31 fiscal year doesn’t line up neatly with most other major Canadian pension plans. Caisse de dépôt et placement du Québec, Ontario Teachers’ Pension Plan and Healthcare of Ontario Pension Plan all posted returns ranging from 7.7 per cent to 11.4 per cent for their years ended Dec. 31, while Ontario Municipal Employees Retirement System lost 2.7 per cent.

The Canada Pension Plan, founded in 1966, is the primary retirement-security program for working Canadians. The government created CPPIB in 1999 to professionally manage the plan’s money. Over time, CPPIB has embraced active management and has used the passive-investing reference portfolio to communicate its contribution to Canadians’ retirement security.

The strong Canadian dollar hurt CPPIB’s numbers in the year ended March 31, trimming eight percentage points and $35.5-billion from returns. CPPIB reports its results in Canadian dollars, but only 15.7 per cent of the fund’s investments are in Canada.

CPPIB reported a 31.7-per-cent return in public equities and 34.4 per cent in its private-equity department. Together, the asset classes represented about 55 per cent of CPPIB’s portfolio at year-end. Mr. Graham highlighted the performance of both, noting that in local currencies, the private-equity department returned 52 per cent over the year.

The real assets department returned 7.5 per cent. The energy and resources portfolio – only about 2 per cent of CPPIB assets – returned 45.8 per cent last year. Real estate, about 9 per cent of the CPPIB portfolio, lost 4.8 per cent. Mr. Graham said struggles in retail were mitigated by a multiyear focus on logistics properties, which benefited from the switch to online commerce amid COVID-19, and high-quality office buildings, where tenants made payments even as their workers stayed home.

CPPIB’s annual compensation disclosure showed Mr. Machin, who left the CEO job on Feb. 25, received $3.98-million, consisting of $625,000 in salary, an annual bonus that topped $1-million, and other long-term and pension compensation.

Mr. Machin is “providing transitional service” to CPPIB until June 15, according to the disclosure. As long as he adheres to non-compete arrangements, his deferred compensation, tied to the performance of the CPPIB fund, will continue to accrue until his awards mature.

CPPIB said Mr. Graham, who previously served as the head of CPPIB’s credit department, made $2.95-million in the year ended March 31.

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe