CPP Assets Earn $2.3 Billion in Latest Fiscal YearMay 14, 2002
The total assets available to the Canada Pension Plan earned approximately $2.3 billion for an estimated 5.7% rate of return in the fiscal year ended March 31, 2002.
The year-end assets consisted of about $39.3 billion in fixed-income securities held by the Canada Pension Plan and administered by the Department of Finance in Ottawa, and $14.3 billion in equities managed by the CPP Investment Board in Toronto.
The fixed-income securities of $39.3 billion were $32.6 billion in federal and provincial government bonds and $6.7 billion in cash-equivalent government securities. These assets generated investment income of $2.0 billion for an estimated 5.0% return. In the prior year, fixed-income assets totalled $42 billion and earned $3.8 billion. During the year a portion of the bonds matured and the net proceeds were transferred to the CPP Investment Board.
The equity portfolio consisted 97% of public equities in externally managed funds that replicate market indexes in Canada, the United States and outside North America, and 3% in externally managed private equity portfolios. The $14.3 billion total equity portfolio compared with $7.2 billion a year earlier and included $6.8 billion in cash transfers from the CPP during the year.
Equities earned $316 million in fiscal 2002 for a 3.4% return, compared with an $845 million investment loss in the previous year for a negative 9.4% return. The fiscal 2002 return exceeded the total portfolio benchmark of 2.4%.
In the first half of the year, equity returns were negative while fixed-income returns were positive. During the second half, however, equity returns were positive while fixed-income returns turned negative in the fourth quarter. Equities rose from 14% of total assets available to the Canada Pension Plan at the start of the year to 27% by year end. Because of the higher fixed income returns during the first half of the year and the higher equity returns in the second half, the shift in the asset mix contributed approximately one percentage point to the consolidated return of 5.7%.
"Equities were highly volatile throughout the year," said CPP Investment Board President and Chief Executive Officer, John A. MacNaughton. "A modest gain in the first quarter was followed by a $1.4 billion loss in the second quarter that was erased by a $1.4 billion gain in the third quarter as markets recovered after the events of September 11. In the fourth quarter we added a further $260 million."
"Our view is that equity returns will continue below their historical levels over the next few years," Mr. MacNaughton commented. "After that, they should return to past levels, which is why we are building equities as a long-term component of the total assets available to the Canada Pension Plan." Over the past 50 years, Canadian and U.S. equities outperformed Government of Canada bonds by 3.0% and 5.8%, respectively.
Based on actuarial projections, CPP contributions are expected to exceed benefit payments until 2021, providing a 20-year period before a portion of the investment income generated by the CPP Investment Board is needed to help pay pensions.
The CPP Investment Board is a crown corporation created by an Act of Parliament in December 1997. It invests in capital markets funds not needed by the Canada Pension Plan to pay current pensions. Cash flows are currently invested in equities to balance the cash and bonds owned by the Canada Pension Plan. By increasing the long-term value of funds, the CPP Investment Board will help the Canada Pension Plan to keep its pension promise to Canadians. Based in Toronto, the CPP Investment Board is governed and managed independently of the Canada Pension Plan and at arm's length from governments. Its fiscal year is from April 1 to March 31.
For further information contact:
John A. MacNaughton
President and Chief Executive Officer