CPP fund closes in on $600B mark after 3.4% gain

Roaring equity markets as 2023 drew to a close helped boost assets managed by the Canada Pension Plan Investment Board to $590.8 billion in the third quarter ended Dec. 31, up from $576.1 billion in the previous quarter.

The gain — which represented a 3.3 per cent net quarterly return for the larger base CPP account in the fund and five per cent return for the additional CPP account introduced in 2019 — was partially offset by foreign exchange losses due to a stronger Canadian dollar relative to the U.S. dollar. The blended return for the quarter was 3.4 per cent.

“Strong performance of global equity and fixed income markets during the final months of calendar 2023 contributed to the fund’s continued growth,” said John Graham, chief executive of CPPIB, which also attributed part of the quarterly growth to gains in credit, private equity, energy and infrastructure assets.

“We remain focused on applying our investment capabilities to prudently manage the fund to deliver long-term value for CPP contributors and beneficiaries,” Graham said.

The base CPP account ended the third quarter with net assets of $557.7 billion, up $11.4 billion from the end of the previous quarter. The gain consisted of $17.8 billion in net income less $6.4 billion in CPP outflows. The Canada Pension Plan Investment Board (CPP Investments) routinely receives more CPP contributions than required to pay benefits during the first part of the calendar year, partially offset by benefit payments exceeding contributions in the final months of the year. Base CPP has a five-year annualized net return of 7.7 per cent.

The additional CPP account ended the third quarter with net assets of $33.1 billion, up $3.3 billion from the end of the previous quarter. The gain consisted of $1.6 billion in net income and $1.7 billion in net additional CPP contributions. The five-year annualized net return of the additional CPP account is 5.3 per cent.

Due to the differences in their design and net contribution profiles, the assets in the additional CPP account are expected to grow at a much faster rate than those in the base CPP account.

The overall fund, which includes both the base and additional CPP accounts, has increased by $20.7 billion in the first nine months of the fiscal year, consisting of $15.3 billion in net income and $5.4 billion in net CPP contributions. This put the fund’s fiscal year-to-date net return at 2.6 per cent and the 10-year annualized net return at 9.3 per cent.

In the 10-year period leading up to and including the third quarter of fiscal 2024, CPP Investments has contributed $319.4 billion in cumulative net income to the fund.

STRONG PERFORMANCE OF GLOBAL EQUITY AND FIXED INCOME MARKETS ... CONTRIBUTED TO THE FUND’S CONTINUED GROWTH.

A triennial review by the chief actuary, published in December 2022, found both base and additional CPP sustainable over the long term at the legislated contribution rates. The projections are based on the assumption that, over the 75 years following 2021, the base CPP account will earn an average annual rate of return of 3.69 per cent above Canadian consumer price inflation and the additional CPP account will earn an average annual real rate of return of 3.27 per cent.