(June 27 – 12:15 ET) – The Canada Pension Plan Investment Board reported that it earned a 40.1% return in its first full year of operations, and had $2.4 billion in assets under management at March 31, 2000. The board released its second annual report today.
It attributed “this extraordinary performance” to its current policy of investing solely in equities. Currently 80% of cash flow is invested in a fund that replicates the TSE 300 composite index. The CPPIB’s Canadian equity fund earned 45.3%.
The remaining 20% of cash flow was invested in two foreign stock index funds that together earned 16.6%.
CPPIB President and CEO John A. MacNaughton commented in a press release, “While pleased to report these results, I caution that as we broaden our asset allocation base, the volatility of our portfolio will decline, as will the likelihood of achieving such outstanding annual results again.”
He noted that since the CPP was founded in 1966 the TSE 300’s return has exceeded 40% on only three occasions. In addition, the index was highly volatile from year to year, losing 11.3% as recently as fiscal 1999.
The federal Chief Actuary has estimated that the CPP needs to earn a real rate of return of 4% over the long term. In the past 34 years, the Canadian market produced an average real return in excess of 4%, although it fell short of that level 50% of the time.
“While it is not possible to hit the 4% real return target consistently year after year, we believe it is a prudent basis for future expectations,” MacNaughton commented.
The CPPIB received $1.9 billion in cash flow from the CPP in fiscal 2000 and earned $464 million in investment income net of investment expenses.
The current policy of investing all cash flows in stock index funds takes into account the $30.3 billion government bond portfolio held by the CPP itself. The federal government administers the bond portfolio. The combined assets of the CPP and the CPPIB were approximately 7% equities and 93% bonds on March 31, 2000.
-IE Staff