Canada Pension Plan Investment Board shifted away from stocks that trade on the world’s exchanges and moved more deeply into private companies and projects such as power plants and toll roads – helping it add $32-billion to its assets in its most recent fiscal year.
The results, released Wednesday, show CPPIB posting a return of 8.9 per cent for the 12 months ended March 31. The return figure, which is net of the costs of running the investment fund, topped the 6.6-per-cent benchmark return CPPIB has crafted for comparative purposes. That incremental outperformance was worth $6.4-billion, CPPIB said. The CPP Fund closed the year with $392-billion in assets.
The money CPPIB manages supports current and future payments to 20 million Canadians participating in the Canada Pension Plan. As a long-term investor, its returns in a given quarter or year aren’t make-or-break. But with billions of dollars in Canadians’ retirement money at stake, the results matter.
The plan’s 10-year rate of return, net of costs, averaged 11.1 per cent a year. “It’s been a terrific 10 years, comparing favourably to our peers around the world,” said CPPIB CEO Mark Machin in an interview Wednesday. “I manage expectations to not necessarily expect 11.1 per cent for the next 10 years, but it’s obviously been a terrific 10 years of rising asset prices around the world.”
Like many pension investors, CPPIB was dinged by the global market meltdown in the fourth calendar quarter of 2018, but rode a rebound in the three months that ended in March. For the fiscal year, CPPIB posted returns of 7.9 per cent in Canadian equities and 7.5 per cent in foreign equities, while reporting a decline of 1.7 per cent in stocks held in emerging markets.
In the private-equity portfolio – investments in the stocks of closely held companies that don’t trade on an exchange – CPPIB reported returns of 5.7 per cent in Canada; 18 per cent in foreign equities; and 11.8 per cent in emerging markets.
Returns in its “real assets” portfolio included 6.4 per cent in real estate and 14 per cent in infrastructure.
The combination of returns and the reallocation of the portfolio meant CPPIB closed its fiscal year with far more emphasis on the assets not easily accessible to the individual investor. All publicly traded equities represented 33.2 per cent of the portfolio on March 31, down from 38.8 per cent one year prior.
Private equity is now 23.7 per cent of the portfolio, up from 20.3 per cent in March, 2018. Credit investments – where CPPIB actively lends to companies or purchases their debt for strategic purposes – jumped to 9.1 per cent of the portfolio from 6.3 per cent the year before. And infrastructure is now 8.5 per cent of the portfolio, up from 8.0 per cent the year before.
“Public equities have trended down as we’ve gotten more money invested in the active programs in real assets, private equity and the other strategies like credit investing,” Mr. Machin said. “It’s not indicative of a view of public equities being an underperformer over time. We’re not taking a market-timing view.”
CPPIB has long-term target allocations that suggest the public-equities portfolio should shrink to 26 per cent of the portfolio, and private equity is also due for a pullback, as its target is just 20 per cent, below current levels. Government bonds are currently five percentage points below their target of 27 per cent, and credit investments and real assets should take up a greater chunk of the portfolio in the long term.
CPPIB’s private-equity deals in the fiscal year included joining with investment company Hellman & Friedman LLC and several others to take Nasdaq-traded Ultimate Software Group Inc. private for US$11-billion and agreeing to put US$500-million into a recapitalization of Chicago-based Berlin Packaging LLC.
Its infrastructure deals included joining with a partner to take a controlling interest in a Brazilian hydro-generation company and teaming up with Ontario Teachers’ Pension Plan to acquire a 49-per-cent ownership in a 309-kilometre toll road in Mexico.
Mr. Machin said CPPIB made 69 investments in excess of $300-million across all its asset classes in the past fiscal year.