CPP Fund assets dip as pension board eyes Trump effect TORONTO
A decline in North American fixed income markets and seasonal cash outflows caused net assets of the Canada Pension Plan Investment Board’s main fund to dip below $300 billion.
The CPP Fund, which had assets of $300.5 billion at the close of the second quarter, ended the third quarter on Dec. 31 with assets of $298.1 billion.
The investment portfolio delivered a net investment return of $1.7 billion, or 0.56 per cent after all costs, while Canada Pension Plan cash outflows in the quarter were $4.1 billion.
“The Fund’s modest return this quarter reflects the largest quarterly decline in North American fixed income markets since CPPIB’s inception coupled with the Canadian dollar strengthening against most major currencies except for the U.S. dollar,” said Mark Machin, chief executive of the Toronto-based CPPIB. He said those factors partially offset gains in the public equity portfolio.
In an interview, Machin said the CPPIB is watching the bond market to try to gauge what the ultimate impact will be of the election of Donald Trump as president of the United States.
“It’s always difficult to tell” what the longer-term direction of the bond market will be, he said. “The received wisdom a few months ago was that we were in a lower for longer (period) and negative rates would continue for as far as you can see, but I think the market took a very different view on the elections in the U.S. and the new administration’s policies being very pro-growth.”
The immediate assumption of an inflationary environment took the wind out of the bond markets, but Machin said it remains to be seen what policies will ultimately be put in place, how quickly that will happen, and what the knock-on effects will be around the world.
“The big protection for us ultimately is diversification and finding diversification across asset classes, across geographies, across strategies, and that’s what we’re focused on overall so we create a portfolio that will weather the stresses in any individual market anywhere,” he said.
Investing in the United States will remain an important part of the strategy for CPPIB, which invests funds not needed to pay current CPP benefits.
“The U.S. is the biggest destina- tion for our capital … We’re active across just about every one of our strategies” there, he said.
Machin said CPPIB, which invests on behalf of 19 million Canadians, is seeking out “selective opportunities” in markets that could be characterized as stable and even somewhat buoyant.
“There’s no market that’s dis- tressed right now. Volatility is, if anything, at all-time lows in the equity markets,” he said.
For the first nine months of the year, the CPP Fund increased by $19.2 billion and posted an investment return of 6.9 per cent after all costs. Investment income was $19.4 billion, and CPP cash outflows were $0.2 billion.
The CPP Fund routinely receives more contributions than are required to pay benefits during the first part of the calendar year. This is partially offset by payments ex- ceeding contributions in the final months of the year.
Keith Ambachtsheer, a pension expert and co-founder of KPA Advisory Services, said quarterly changes in capital value of an investment fund “are noise … not signal” — regardless of whether they are positive or negative.
“That’s why most of the content of the quarterly CPPIB reports deal with more important longer term issues,” he said.
The big protection for us ultimately is diversification and finding diversification across asset classes, across geographies, across strategies ...