The Canada Pension Plan Investment Board (CPP Investments), one of the world’s largest private equity investors, reported net assets of C$570 billion (US$418.8 billion) at the end of the fiscal year on March 31 2023, compared with C$539 billion a year ago.
The C$31 billion increase in net assets consisted of C$8 billion in net income and C$23 billion in net transfers from the Canada Pension Plan (CPP). CPP Investments received greater-than-usual net CPP cash flows in fiscal 2023 due to higher employment rates, an increased limit to the year’s maximum pensionable earnings, an increase to additional CPP contribution inflows, and a lump-sum inflow in the fourth quarter due to forecasting adjustments made by the CPP.
The fund, which includes the combination of the base CPP and additional CPP accounts, achieved a net return of 1.3% for the fiscal year or a 10-year annualized net return of 10.0%. Since its inception in 1999, CPP Investments has contributed C$386 billion in cumulative net income to the fund.
“Our strong long-term return of 10% over 10 years demonstrates that our active management strategy is on track,” says president and chief executive officer John Graham. “Despite significant declines in global equity and fixed-income markets during our fiscal year, our investment portfolio remained resilient, delivering stable returns while outperforming major indices.”
The positive fiscal-year results reflect returns on investments in infrastructure and certain US dollar-denominated private equity and credit assets, which benefited from foreign exchange, CPP Investments says. External investment managers employing quantitative, equity, and fixed-income trading strategies also contributed positively to the results.
The fund’s performance was partially offset by significant declines in both equities and fixed income across major markets as high inflation and rising interest rates weighed heavily on both asset classes. The Canadian dollar depreciated against the US dollar and other major currencies during the year, influenced by the impact of evolving monetary and fiscal policies across global economies. This had a positive impact on investment returns with a foreign currency gain of C$25 billion.
The fund has established benchmarks of passive, public market indices – reference portfolios – that reflect the targeted level of market risk that it believes is appropriate for each of the base CPP and additional CPP accounts, while also serving as a point of measurement when assessing the fund’s performance over the long term.
On a relative basis, the fund’s net return of 1.3% outperformed the aggregated reference portfolios’ return of 0.1%. As a result, in fiscal 2023, net dollar value-added for the fund was C$2 billion. Over the five-year and 10-year periods, the fund delivered an aggregate dollar value-added of C$7 billion (or percentage value-added of 0.8%) and a dollar value-added of C$18 billion (or 0.8%), respectively.
“CPP Investments has a clear mission to help ensure the long-term financial sustainability of the CPP, which includes navigating through periods of volatility," says Graham. “When CPP Investments was first created, it was projected that the fund would earn C$256 billion in investment income and grow to C$368 billion at the end of 2022. Since that time, CPP Investments has made many strategic choices that have set the fund on the path to exceed those projections by more than C$200 billion. At C$570 billion, this outperformance is due in part to the C$386 billion in investment income earned over that period.”