The Canada Pension Plan Investment Board sees the United States as a key destination for investments in the near term, but expects to shift a bigger share of its assets to faster-growing emerging economies over time.
Emerging markets equities account for about 5.9% of the assets managed by the CPP Investment Board, but chief executive Mark Wiseman said Thursday the fund is building its capabilities in markets like India, China and Latin America in a “slow and prudent progression.”
“We believe they will undoubtedly have ups and downs, but in the long run those economies will produce disproportionately higher growth than the developed economies of Europe and North America,” Wiseman said.
The CPP Fund reported Thursday a return of 18.3% for its latest financial year, its best showing ever.
Compared with the end of fiscal 2014, the fund’s assets were up $45.5 billion from the end of fiscal 2014 — the biggest one-year gain since the fund received its first money for investments in March 1999.
In the medium term, Wiseman said there are “excellent prospects” in the United States, which is home to about $100.7 billion or 38% of the fund’s assets — the largest of any country.
“We see more investment opportunities there than in other developed world markets,” Wiseman said.
As for Canada, which represented about 24.1% of the fund’s assets as of March 31, Wiseman said the CPPIB continues to have a positive view despite the impact of the recent oil price shock.
He said lower energy prices, the decline in the loonie’s value against the U.S. dollar, and “solid growth” in the United States — Canada’s biggest market — should help the overall economy.
“So, by and large, we remain optimistic about Canada as well as the U.S,” Wiseman said.
The CPP Investment Board says there were multiple reasons for the strong investment performance last year, including growth at all major stock markets, bonds, private assets and real estate holdings.
Only $4.9 billion of last year’s increase came from employer and employee contributions while $40.6 billion came from investments. None of the fund’s assets were required to pay benefits to current retirees, with contributions expected to carry the load until the end of 2022.
The value of its investments also got a $7.8-billion boost in fiscal 2015 from a decline in the Canadian dollar against certain currencies, including the U.S. dollar and U.K. pound.
The fund’s 10-year inflation-adjusted rate of return was 6.2% — well above the 4.0% that Canada’s chief actuary estimates is necessary.