Canada Pension Plan announces $23 billion loss in June quarter as markets turn

The Canada Pension Plan Investment Board said it lost 4.2% in its latest quarter, subtracting $23 billion from fund assets.

It could have been worse: the three months ended June 30 were terrible for most investors. According to Royal Bank of Canada’s RBC I&TS All Plan Universe, defined benefit pension plan assets fell 8.6%, matching the third quarter of 2008 for the largest decline in 28 years that RBC began tracking the performance of Canadian plans.

The S&P Global LargeMidCap Index, a measure of stocks the Office uses as 85% of its benchmark benchmark portfolio, fell nearly 13.5% in the quarter. The FTSE Canada Universe All Government Bond Index, the remaining 15% of the benchmark, fell nearly 6%. In total, this means the Office beat a benchmark of minus 12.4% by more than eight percentage points.

CPPIB ended the quarter with assets of $523 billion, up from $539 billion at the end of the previous quarter. Investment losses were offset by contributions of $7 billion to the Canada Pension Plan.

At the start of the COVID-19 pandemic, when global markets fell, CPPIB’s asset mix eased the pain and the pension fund manager lost far less money than an ordinary investor on the stock market. However, the Board often lags when public stock markets rise rapidly, as they have in several recent quarters as investors shrug off pandemic fears.

Now we are back to falling markets, and CPPIB is outperforming them.

“Capital markets have had the toughest first six months of the year in the past half-century, and the credit union’s fiscal first quarter was not immune to such a broad-based decline,” said John Graham, CEO of CPPIB, in a statement accompanying the returns. “The uncertain business and investment conditions that we saw in the prior quarter continue and we expect this turbulence to persist throughout the year.”

CPPIB said its loss was due to the decline in public equity markets, but investments in private equity, credit and real estate also contributed “modestly”. CPPIB also lost money in fixed income investments, such as bonds, due to higher interest rates imposed by central banks to fight inflation.

Earnings from external portfolio managers, quantitative trading strategies and investments in energy and infrastructure contributed positively. CPPIB also recorded foreign exchange gains of $3.1 billion as the Canadian dollar weakened against the US dollar. (Most of CPPIB’s investments are held outside of Canada, but it reports results in dollars.)

The Canada Pension Plan, founded in 1966, is the main national retirement program for Canadian workers. The government created the CPPIB in 1999 to professionally manage the plan’s money. Over time, CPPIB has embraced active management and its mix of stocks, bonds, real estate, infrastructure, private equity and other specialist investments has outperformed public markets and its portfolio reference.

Although CPPIB publishes quarterly reports, it emphasizes its multi-generational mandate and likes to emphasize its long-term returns. The plan’s five-year net return, net of investment costs, was 8.7% through June 30; the 10-year net return was 10.3%.

CPPIB’s annualized return for the 10 years ended September 30 was, at 11.6%, the highest 10-year return figure in its history.

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