Pension fund reports record year

The Canada Pension Plan Fund says its assets under management reached a record high of $148.2 billion at the end of its most recent fiscal year as stocks and private markets continued to rebound.

The Canada Pension Plan Fund says its assets under management reached a record high of $148.2 billion at the end of its most recent fiscal year as stocks and private markets continued to rebound.

That compared to $127.6 billion at the end of fiscal 2010 and a previous record high of $127.7 billion in June 2008, just months before a crisis in the U.S. financial industry sparked a major global recession.

“Fiscal 2011 was an excellent performance year, with the Fund benefiting from strong results across all asset categories and geographies,” said David Denison, president and CEO of the CPP Investment Board.

“By adhering to our long-term strategy during and following the recent financial crisis, the fund has benefited from the recovery in the global public equity markets and has generated total investment income of $31.7 billion over the past two fiscal years.”

About $15.5 billion of the increase in fiscal 2011 came from investment income, from assets bought by the CPP Investment Board with money not required to pay current benefits under the Canada Pension Plan.

Excess CPP contributions paid by about 17 million Canadian employees added another $5.4 billion to the fund, down from $6.1 billion in the year-earlier. The level of surplus contributions to the Canada Pension Plan is expected to continue declining as a greater proportion of the population retires.

The CPPIB was designed to build up a pool of investments that can generate enough money to take up the slack as contributions from employers and employees fall.

However, that money is not expected to be needed until 2021.

The investment fund’s performance is key to ensuring that future generations of Canadian have access to CPP payouts, even when the number of contributors declines in relation to pensioners as baby boomers retire and the workforce ages.

The CPPIB invested $17 billion in private assets during fiscal 2011, including participation in the largest private equity made that year.

It partnered with Onex Corp. (TSX:OCX) to acquire British construction firm Tomkins plc for $1.1 billion.

CPP also recently took up a 40 per cent stake in Ontario’s busy 407 express toll highway in two separate transactions.

It also bought up prime real estate in North America, the U.K. and Australia.

The CPPIB said that given the multi-generational nature of the fund, long-term results are a more relevant calculation of its financial health. For the five-year period ended March 31, the fund generated a 3.3 per cent rate of return, or $20.9 billion in investment income. For the 10-year period it had a 5.9 per cent return and $51.8 billion of cumulative investment income.

The return rate on its investment portfolio dropped to 11.9 per cent from to 14.9 per cent in the year earlier.

The board also measures the fund’s performance against a benchmark reference portfolio that represents a passive portfolio of public market investments. CPP outperformed its reference portfolio 2.07 per cent or $2.7 billion.

However, the board has recently been focused on making a number of acquisitions in the private market. The percentage of its portfolio concentrated in the Canadian equities fell to 20.3 per cent from 43.7 per cent in the year earlier.

“Many of our investment programs such as real estate and infrastructure are very long-term in nature, and we are pleased that the benefits of those programs are materializing as private market valuations start to reflect the economic recovery of the past two years,” Denison said.

“The full range of CPPIB’s investment programs contributed to the Fund’s strong absolute and value-added returns in fiscal 2011 showing the benefit of the broad diversification we have achieved.”

Investments in the private market, such as real estate, infrastructure, private equity and debt made up about 31 per cent or $46 billion of its portfolio during the year.

As part of its annual report, the CPPIB released that its top executives’ pay increased by 10 per cent to a total of $11.6 million from $10.5 million a year ago. The portion of incentive payout tied to performance increased by five per cent.

Denison’s pay was up slightly to $3.05 million compared to $2.99 million in 2010. Wiseman’s surpassed his to $3.14 million, up from $2.82 million.