Public Sector Pension Investment Board, the manager of several federal employee plans, closed its fiscal year with $204.5-billion in assets and an 18.4-per-cent return, its best single year in the past decade.
PSP said it has now posted a 10-year annual return of 8.9 per cent, 0.7 percentage points better than its annual benchmark.
“Over the long term, we’re definitely performing,” chief executive officer Neil Cunningham said Wednesday in an interview. “The short-term results are more volatile and less significant, but they do reflect the resilience of the portfolio based on portfolio construction and asset and sector selection that we’ve made over a number of years.”
In the interview, Mr. Cunningham also addressed PSP’s 100-per-cent ownership of Revera Inc., a long-term care home operator that, like others in its industry, coped with illness and death among its residents and employees. PSP is satisfied that Revera was not at fault for what happened in the pandemic, he said.
PSP manages money for the pension plans of the federal public service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force. PSP’s fiscal year, which ends March 31, doesn’t line up neatly with most other major Canadian pension plans, which use a calendar year.
Caisse de dépôt et placement du Québec, Ontario Teachers’ Pension Plan and Healthcare of Ontario Pension Plan all posted returns in calendar 2020 ranging from 7.7 per cent to 11.4 per cent for their years ended Dec. 31, while Alberta Investment Management Corp. returned 2.5 per cent and Ontario Municipal Employees Retirement System lost 2.7 per cent.
However, Canada Pension Plan Investment Board, which uses the same March 31 fiscal year end, returned 20.4 per cent, its best-ever annual return. But skyrocketing stock markets created a benchmark return of 30.4 per cent – a full 10 percentage points higher than CPPIB’s performance.
Mr. Cunningham said PSP’s “reference portfolio” for external benchmarking is a blend of 59 per cent equities to 41 per cent bonds, less aggressive than CPPIB’s 85-15 mix.
PSP said Wednesday its capital markets division, which includes publicly traded stocks and bonds and represents almost half its portfolio, returned 26.6 per cent in the fiscal year versus a 23-per-cent benchmark. Its real estate, infrastructure, natural resources and credit investments segments all outperformed benchmarks.
But its private-equity group, the second-largest portion of the portfolio with $31.7-billion in assets at year end, underperformed its benchmark by more than three percentage points, despite a 28.4-per-cent return.
PSP cited the underperformance “of certain legacy investments” in the communications, consumer staples and industrials sectors. It said 85 per cent of the private-equity portfolio has been invested over the past six years after a change in strategy to strike more partnerships with outside investors. That portion has outperformed the benchmark over the past five years, PSP said.
Mr. Cunningham, who was promoted to the CEO role in 2018, said PSP’s biggest strategic change, going forward, will be a greater emphasis on Asian markets. “They are becoming an increasingly large share of global markets and global activity, and we need to be part of that.”
Mr. Cunningham said PSP’s strategic plan calls on the fund to improve its use of technology and data to make investments across all industries. “We’re going to be focusing a lot of energy and efforts particularly in the next year in consolidating our data sources and becoming better at analytics and knowledge sharing across the organization. That is designed to drive database, insight-driven decision making across the organization.”
“Disruption, in my view, is not restricted just in technology innovation – it’s happening across all industries and sectors and it needs to be viewed in the context of other trends,” he said. “For instance, ESG [environmental, social, and governance]. And climate change trend is very much a disruptor. COVID was very much a disruptor and that had accelerated numerous trends that were already in the market. So our view is technology acts as an accelerator, rather than being the investment theme itself.”
PSP purchased Revera in 2007, when it was known as Retirement Residences Real Estate Investment Trust.
“We have tremendous feelings about the suffering that the people in long-term care and the families and the caregivers went through over the last period of time,” Cunningham said. He said Revera employees make up a minority of the board of directors, which has its own nominating committee.
“Our oversight of the company involves us ensuring that the board is properly overseeing the operations, and we’re satisfied from an operations perspective that Revera itself was not at fault for the results of what happened in the pandemic. The question, which is a social policy question, is how do we properly develop and deliver long-term care to our senior population going forward? And that’s a policy discussion which needs to happen and is happening.”
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David Milstead