Caution Rules in Best Bond Year Since ’02: Credit Markets

By Sridhar Natarajan  Dec 30, 2014 4:56 PM MT 

In the best year for the global bond market in more than a decade, investors were rewarded more for being cautious than for taking big risks.

Fixed-income assets of all types generated an average total return of 7.6 percent, led by gains ingovernment securities such as U.S. Treasuries and German bunds. Corporate junk bondsturned in their worst performance since the 2008 financial crisis, returning just 2.5 percent.

Almost no one expected this year to turn out the way it did for the bond market, as most economists and strategists failed to anticipate the weakness in the global economy and inflation or the conflicts in Ukraine and the Middle East. That led the Federal Reserve, European Central Bank and Bank of Japan to continue with policies that had the effect of suppressing interest rates and sparking demand for the safest of assets.

“Everybody got it wrong this year in the bond market,” Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York, said in a telephone interview. “The economy didn’t improve to the degree people were expecting and even the global economy didn’t respond as expected.”

Missed Forecasts

Global economic growth will be about 3.2 percent for 2014, according to forecasts compiled by Bloomberg, compared with 3.5 percent predicted at the start of the year. A year ago, when the benchmark 10-year Treasury note was trading at about 3 percent, the median estimate of economists and strategists surveyed by Bloomberg was for it to rise to 3.44 percent by now. Instead, it slid to 2.2 percent as of yesterday.

The average yield on bonds globally fell to a record low 1.5 percent in October. It has since climbed to 1.6 percent.

The yield on company debentures worldwide at 3.5 percent is still below its five-year average of 4 percent. Companies tapped the opportunity to borrow at historically low interest rates, raising a record $4.1 trillion from the market this year.

The U.S. central bank said this month it “can be patient” in raising short-term interest rates that have been pegged near zero for six years even as the ECB prepares to flood its financial system with cash to revive tepid economic growth and ward off deflation. At the same time, a 50 percent tumble in oil prices from their June peak put pressure on a large portion of the junk-bond market, wiping out most of the year’s gains.

Government Returns

Government bonds globally have returned 8.1 percent this year, according to the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index. U.S. government securities have gained 5.9 percent this year, according to the Bloomberg U.S. Treasury Bond Index, which is set for its biggest annual gain since 2011. Treasuries with maturities of 10 years or more have returned 24 percent, while notes with one- to five-year maturities gained 1.2 percent, Bloomberg indexes show.

U.K. gilts returned 14 percent in 2014 through Dec. 19, leaving them poised for the best year since 2011, according to Bloomberg World Bond Indexes, as the Bank of England kept its maininterest rate at a record low to support growth. German bunds advanced 10 percent, the gauges show, as steps to ease monetary conditions by the ECB and safe-haven demand pushed yields to record lows.

Investment-grade corporate debentures from North America to Europe and Asia posted a 7.6 percent increase, building on the 0.05 percent advance all of last year, Bank of America Merrill Lynch index data show.

High-Grade Funds

High-grade bond funds in the U.S. have seen an uptick in demand, with a 5.3 percent increase in assets under management, or a $94.9 billion expansion, according to a Dec. 18 report from Bank of America Corp. That’s the biggest percentage gain among asset classes tracked by the Charlotte, North Carolina-based bank. High-yield fund redemptions reached 5.3 percent, with investors pulling $17.4 billion this year, according to the report.

The market for speculative-grade debt globally, which was on track for 9 percent gains this year at the end of August, tumbled with the collapse in oil prices. U.S. crude production reached record levels as a combination of horizontal drilling and hydraulic fracturing unlocked supplies from shale formations. The energy sector recorded an 8.8 percent loss.

‘Fantastic Year’

Corporate loans, which were in vogue in 2013 as investors piled into the debt based the outlook for rising rates, have generated gains of 1 percent in 2014, compared with 5 percent last year. Withdrawals from funds that purchase loans, which have rates that rise or fall with benchmarks, soared to 12 percent this year, according to the BofA report.

Mortgage-backed securities in the U.S. are set to post their best gains in three years, with 2014 returns climbing to 6 percent, index data show. Other kinds of asset-backed debt rose 1.6 percent after a 0.9 percent 2013 rise.

“Investment-grade funds have had a fantastic year and produced some very strong returns,” said James Tomlins, a London-based fund manager at M&G Investments, which oversees 257 billion pounds ($400 billion) of assets. “The sense of uncertainty about European growth going forward has hurt high yield. The outlook was better at the start of the year and then suddenly there was a big change in growth expectations for a lot of European companies.”

Tensions in Russia and Ukraine made investors less willing to take credit risk, according to Tomlins. Russia annexed Crimea, a peninsula in the Black Sea where it maintains a naval base, which was transferred to Ukraine in 1954 and retaken by force in March.

The economy’s failure to meet initial 2014 forecasts was caused by bigger-than-anticipated slowdowns in emerging markets and a failure by the euro area to gain traction, according to economists at JPMorgan Chase & Co. China, meanwhile, is seeing economic growth of about 7.3 percent for this year, the lowest since 1990.

“Investors priced in a Cinderella scenario, where you see Europe turn around, U.S. wage growth and China at double-digit growth,” Thomas Byrne, director of fixed-income at Wealth Strategies & Management LLC, said by telephone from Stroudsburg, Pennsylvania. “The market had priced in a fairytale outcome and that’s not what happened, and that’s resulted in this drive to safer assets.”

To contact the reporter on this story: Sridhar Natarajan in New York atsnatarajan15@bloomberg.net

Canadian Pension Plan Solvency Declines in 2014, Aon Hewitt Survey Finds Aon Hewitt's Key Measure of Defined Benefit Pension Plan Health Shows First Annual Decline in Three Years, While Plans Following a De-Risking Strategy Show Solvency Improvement December 31, 2014: 11:20 AM ET The solvency of Canadian defined benefit (DB) plans declined through 2014, according to the latest pension plan solvency ratio survey by Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE: AON). The nearly three-percentage-point decline in plan solvency in 2014 was driven by a decrease in long-term interest rates, and represents the first annual decrease in Aon Hewitt's key measure of defined benefit pension plan health since 2011. The solvency ratio also declined in the fourth quarter from the third, by 0.5 percentage points. However, compared with traditional pension plans, plans that had a de- risking strategy in place for 2014 continued to be more resistant to interest rate declines; as a result, their solvency ratio saw more moderate declines year-over-year, and actually improved in the fourth quarter. A total of 449 Aon Hewitt administered pension plans from the public, semi-public and private sectors participated in the survey, and their median solvency funded ratio -- the market value of plan assets over plan liabilities -- stood at 90.6% at December 31, 2014. That represents a decline of 0.5 percentage points over the previous quarter ended September 30, 2014, and a 2.7 percentage-point drop from plan solvency at December 31, 2013. Since peaking at 96.6% in April 2014, overall plan solvency has declined by 5.9 percentage points, continuing the trend towards worsening plan solvency that began in the third quarter of 2014 (when the solvency ratio dropped to 91.1% from 96.2% in the previous quarter). As well, approximately 18.5% of the surveyed plans were more than fully funded at the end of the year, compared with 23% in the previous quarter and 26% at the end of 2013. Plan sponsors that must file valuations as at December 31, 2014 could see the amount of their deficiency contributions double in 2015 as a result of the lower solvency ratio. Long-term interest rates experienced significant volatility in 2014, with an overall decline of nearly a percentage point. Overall, the year demonstrated that amid market volatility, pension plans that have adopted a de-risking strategy which partly mitigates interest rate risk perform better than pension plans that continue to take interest rate risk. By way of example, a traditional plan (with a 60% equity/40% bond asset mix) that began the year with a 90% solvency ratio would have finished 2014 with a ratio of 88.5 %. In contrast, according to the Aon Hewitt survey, a typical delegated plan with a solvency ratio of 90% on January 1 would have ended 2014 with a ratio of 91.5%. Delegated pension plans typically have adopted a de-risking strategy, implemented by a professional third party that optimizes the risk of the plan within an asset-liability context. For many this means greater portfolio diversification in their return-seeking assets and a higher interest rate hedge ratio. The result: better protection against equity market volatility. "If nothing else, the performance of Canadian DB plans in 2014 shows how quickly the solvency landscape can change in response to capital market volatility. Plans that stayed exposed to interest rates really took a beating in 2014," said William da Silva, Senior Partner, Retirement Practice, Aon Hewitt. "Those plan sponsors who have implemented or fine-tuned their risk management strategies performed much better than traditional plans amid interest rate declines. Looking ahead to 2015, the only certainty is uncertainty. This should inspire all plan sponsors to evaluate their funding and investment strategies, with a view to better managing risk." The imperative for plan sponsors to re-evaluate their approach to risk management is even more crucial in 2015, adds da Silva, with the pending introduction of new mortality tables for the Canadian market, which when implemented may have a significant impact on plan solvency. Pensioners are living longer, which may increase liabilities for many plans; in fact, according to Aon Hewitt, the new mortality tables from the Canadian Institute of Actuaries could result in a decline in median plan solvency of more than four percentage points. The main driver for the drop in solvency ratios during 2014 was the decrease in discount rates used to value plan liabilities. This was primarily driven by the decrease in prevailing rates on the longer end of the yield curve, which had a positive impact on fixed-income assets (8.4% and 16.7% return on Universe and Long Bonds, respectively), but a negative impact on transfer values and the cost of purchasing annuities. The adverse impact of lower interest rates was in part offset by equity performance, led by U.S. Equities (26.3%), World Equities (16.3%) and Canadian Equities (10.8%). Plans invested in alternative asset classes like Global Real Estate and Infrastructure were rewarded with 2014 returns of 28.2% and 26.9%, respectively. (The above returns are in Canadian dollars, and include the 8.5% gain from the depreciation in the Canadian dollar over 2014.) "2014 represents an inflection point in plan performance, and should serve as a wake-up call for defined benefit plan sponsors. The negative pressure on interest rates was unexpected," said Ian Struthers, Partner, Investment Consulting Practice, Aon Hewitt. "With strength in the US economy offset by weakness in Europe and Asia, and with volatility in commodity prices, we can continue to expect interest-rate instability and weakness in some equity markets, notably Europe. With the added impact of new longevity estimates coming soon, plan sponsors need to carefully consider their investing and governance approach. For example, plans that not only mitigate interest rate risk, but also include a robust governance process that locks in market gains, will be best positioned to manage within this volatility -- a fact well worth considering in what looks likely to be a continuing difficult landscape in 2015." The solvency funded ratio measures the financial health of a defined benefit plan by comparing total assets to total pension liabilities in the event of plan termination. Aon Hewitt's median pension solvency ratio is the most accurate and timely representation of the financial condition of Canadian DB plans because it draws on a large database and reflects each plan's specific features, investment policy, contributions and solvency relief steps taken by the plan sponsor. About Aon Hewitt's Median Solvency Ratio Aon Hewitt's Median Solvency Ratio is developed using a database of 449 pension plans from all sectors (public, semi-public and private) and from most Canadian provinces. Each plan's characteristics and data are used to project their solvency ratio on a monthly basis. These projections take into account the increase in financial indices for various asset classes, as well as the applicable interest rates to value liabilities on a solvency basis. About Aon Hewitt Aon Hewitt empowers organizations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design and execute a wide range of solutions that enable clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability and wellness. Aon Hewitt is the global leader in human resource solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide. For more information on Aon Hewitt, please visit www.aonhewitt.com. About Aon Aon plc (NYSE: AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 66,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world's best broker, best insurance intermediary, best reinsurance intermediary, best captives manager, and best employee benefits consulting firm by multiple industry sources. Visit aon.com for more information on Aon and aon.com/manchesterunited to learn about Aon's global partnership with Manchester United. Image Available: http://www.marketwire.com/library/MwGo/2014/12/31/11G029382/Images/AONENGLISH-147107505936.jpg

Retirees' target date funds making hedge fund style bets

BY JESSICA TOONKEL

NEW YORK Mon Dec 8, 2014 1:05am EST

(Reuters) - A fast-growing segment of U.S. retirement plans is using hedge-fund type strategies to bet a small but increasing slice of their assets.

BlackRock Inc (BLK.N), the world's largest asset manager, and Manning & Napier are among the managers that use strategies such as shorting stocks and trading derivatives in some 401(k) retirement plans, including target date funds. J.P. Morgan Asset Management and Voya Investment Management are considering adding similar strategies, executives told Reuters.

A hedge-fund style can be more expensive and riskier than just buying stocks and bonds, and workers may not fully realize their exposure, retirement consultants said. On the other hand, they can act as a shock absorber to events like the 2008 financial crisis.

Target-date funds, where some of these strategies are being used, have more than doubled their assets to $701 billion since 2010, according to Morningstar. U.S. legislation in 2006 allowed employers to automatically enroll employees into these funds, a default feature that has spurred asset growth.

In a target-date fund, retirement savers choose or are placed in a fund based on their expected retirement year and the portfolio adjusts its mix of assets, which traditionally were stocks and bonds, to become less risky over time.

About 41 percent of 401(k) plan participants invest in target-date funds, compared with 20 percent five years ago, according to the SPARK Institute, a Washington DC-based retirement plan lobbyist.

As of December 2013, 14 percent of target date fund managers had allocations to hedge fund strategies, up from 10.5 percent three years ago, according to retirement plan consultant Callan Associates.

The median target date fund allocation to hedge fund strategies rose to 5 percent in 2013, from 1.86 percent in 2011.

Many target date funds saw their performance plummet during the financial crisis because they were too heavily exposed to stocks and are turning to hedge strategies to prevent that from happening again, said Lori Lucas, defined contribution practice leader for retirement plan for Callan.

Meanwhile, these funds' expenses have risen. A 2050 target date fund with a 5 percent allocation to hedge funds carries a 60 basis point expense ratio, nine basis higher than an average target date fund, according to Callan. That would add about $450 a year in fees to a retirement account containing $500,000.

Asset managers say the true value of adding alternative strategies, which are designed to protect investors from downside risk, will not prove itself fully until equity markets stumble.

"These strategies have not helped in the bull market but tough times will be the litmus test," said Jeff Coons, president and co-director of research at Manning & Napier, which manages about $50 billion, including about $768 million in target date funds.

Last summer, Rochester, New York-based Manning & Napier's target date funds began trading fixed income futures contracts to hedge against interest rate risk, as well as stock option calls and puts on stocks it holds in its portfolios to hedge against equity market volatility.

Employers with 401(k) plans and the advisers who serve them worry that these additions mean more complexity.

"How are we supposed to evaluate and monitor these investments?" said Don Stone, director of defined contribution strategy and product development for Pavilion Advisory Group, which advises 401(k) plans. "The fact is it is hard and there has to be a certain level of trust in the managers."

ADDING ALTERNATIVES

Mutual funds using hedge fund strategies have grown in popularity since the financial crisis and had $158 billion in assets as of October, up from $37.6 billion at year-end 2008, according to Morningstar.

When average investors assess how risky their target date funds are, however, most just look at the allocation to equity versus fixed income, said Jim Lauder, portfolio manager of Wells Fargo's Advantage Dow Jones Target Date Funds, which are index-based.

By adding hedge-like strategies to its target date funds, firms like BlackRock expect they are reducing the risks of their portfolios.

Over the past 12 months, BlackRock has added alternative strategies to its $200 million Lifepath Active target date funds. The funds' allocation to hedge fund strategies rises as the investor gets closer to retirement, with the current maximum percentage allocated to them "in the high teens," said Dagmar Nikles, head of investment strategy for BlackRock's U.S. and Canada defined contribution group.

BlackRock has offset any added expense through other enhancements to the funds. As such, the overall expense of the funds hasn't risen and is below average.

Manning & Napier bought a team of portfolio managers earlier in the year that specializes in managed futures and wanted to add the capability to its target funds. The goal is to protect investors at or near retirement from interest-rate risk, Coons said.

Still, the average 401(k) plan participant does not have access to these kinds of strategies because employers will not offer them.

Jim Phillips, president of Retirement Resources, a Peabody, Massachusetts-based firm that advises 401(k) plans with $50 million to $100 million in assets, said employers don't want to offer hedge fund strategies to their workers as stand-alone investments. The fear is that employees would put all of their retirement savings into those strategies.

He said he welcomes the addition of hedge fund strategies as a piece of target-date fund portfolios.

"It is really the only sensible way to give these investors exposure to alternative investing," Phillips said.

More target date funds may add these investments once the current bull market comes to a close.

New York-based Voya is holding off because there is no rush given the strong equities market, said Paul Zemsky, CIO of multi-asset strategies. The average alternative mutual fund has returned 2.3 percent over the past year, compared to the average equity fund, which has returned 10.55 percent, according to Morningstar

"You are really putting a lot of faith in the skill of the portfolio manager when you choose these funds," Zemsky said.

(Reporting By Jessica Toonkel, Editing by Tim McLaughlin and John Pickering)

CPP Investment Board

November 13, 2014 08:00 ET

CPP Fund Totals $234.4 Billion at Second Quarter Fiscal 2015

All figures in Canadian dollars unless otherwise noted.

TORONTO, ONTARIO--(Marketwired - Nov. 13, 2014) - The CPP Fund ended its second quarter of fiscal 2015 on September 30, 2014 with net assets of $234.4 billion, compared to $226.8 billion at the end of the previous quarter. The $7.6 billion increase in assets for the quarter consisted of $7.5 billion in net investment income after all CPPIB costs and $0.1 billion in net CPP contributions. The portfolio delivered a gross investment return of 3.4% for the quarter.

For the six month fiscal year-to-date period, the CPP Fund increased by $15.3 billion from $219.1 billion at March 31, 2014. This included $11.0 billion in net investment income after all CPPIB costs and $4.3 billion in net CPP contributions. The portfolio delivered a gross investment return of 5.1% for this period.

"During the quarter, our investment portfolio reflected mixed performance from the global public equity markets, balanced by solid returns from our fixed income assets and positive contributions from our private investments," said Mark Wiseman, President & Chief Executive Officer, CPP Investment Board (CPPIB). "We continue to realize the benefits of a globally diversified, resilient portfolio that is designed to deliver superior returns over the long term."

The Canada Pension Plan's multigenerational funding and liabilities give rise to an exceptionally long investment horizon. To meet long-term investment objectives, CPPIB is building a portfolio and investing in assets designed to generate and maximize long-term returns. Long-term investment returns are a more appropriate measure of CPPIB's performance than returns in any given quarter or fiscal year.

Long-Term Sustainability

In the most recent triennial review released in December 2013, the Chief Actuary of Canada reaffirmed that, as at December 31, 2012, the CPP remains sustainable at the current contribution rate of 9.9% throughout the 75-year period of his report. The Chief Actuary's projections are based on the assumption that the Fund will attain a prospective 4.0% real rate of return, which takes into account the impact of inflation. CPPIB's 10-year annualized nominal rate of return of 7.5%, or 5.6% on a real rate of return basis, is above the Chief Actuary's assumption over this same period. These figures are reported net of all CPPIB costs to be consistent with the Chief Actuary's approach.

The Chief Actuary's report also indicates that CPP contributions are expected to exceed annual benefits paid until the end of 2022, after which a portion of the investment income from CPPIB will be needed to help pay pensions.

Q2 Investment Highlights:

Private Investments

• Signed an agreement to invest approximately EUR376 million for a 39% stake in European car park operator, Interparking. Based in Brussels, Interparking is one of Europe's largest car park management companies with a portfolio of 657 car parks in 350 cities.

Public Market Investments

• Received an additional Qualified Foreign Institutional Investor (QFII) quota of US$600 million to invest in China A-shares that are traded on the Shanghai and Shenzhen Stock Exchanges. Since 2011, when CPPIB obtained its QFII licence, a total allocation of US$1.2 billion has been granted to CPPIB, thereby making it the 8th largest QFII holder.

• Participated in the initial public offering of Chinese e-commerce firm, Alibaba Group Holding Limited. CPPIB has been an early investor in Alibaba since 2011 and has invested a total of US$314.5 million to date.

• Completed a US$325 million investment in U.S.-based cancer treatment services provider, 21st Century Oncology Holdings, Inc. Founded in 1983, 21st Century Oncology offers a comprehensive range of cancer treatment services including radiation therapy, and operates 179 treatment centres across 16 U.S. states and six countries in Latin America.

• Committed to a $200 million follow-on investment in WSP Global Inc. (WSP) in conjunction with WSP's proposed acquisition of Parsons Brinckerhoff Group Inc., a global professional services firm. The transaction closed on October 31, 2014. WSP is one of the world's leading engineering professional services firms with 31,500 employees around the world.

Real Estate Investments

• Allocated an additional US$500 million to the Goodman North American Partnership (GNAP), a joint venture formed in 2012 between CPPIB and Goodman Group to assemble an institutional-quality, modern logistics and warehouse facilities in major U.S. markets. CPPIB's aggregate allocation to GNAP now totals US$900 million representing a 45% interest in the joint venture. To date, GNAP has committed to six development projects in California with a total potential gross leasable area of 6.5 million square feet.

• Expanded CPPIB's multifamily portfolio in the U.S. Over the past year, CPPIB has made equity commitments totalling US$330 million in six Class-A multifamily developments in California, Georgia and Massachusetts with over 2,200 luxury residential units. Since 2011, CPPIB has committed a total of US$1.3 billion in this sector with direct joint venture interests in over 8,400 units in eight U.S. markets.

Investment highlights following the quarter end include:

• Significantly expanded CPPIB's real estate portfolio in Brazil with additional equity commitments to logistics and retail assets totalling approximately R$1.0 billion (C$445 million). These investments include a R$507 million (C$226 million) equity commitment for a 30% ownership stake in a new joint venture with Global Logistic Properties (GLP) comprising a high-quality portfolio of logistics properties located primarily in São Paulo and Rio de Janeiro. CPPIB's commitments to Brazilian real estate investments now total more than R$4.3 billion (C$2.0 billion).

• Wilton Re, a portfolio company owned by CPPIB and Wilton Re management, signed an agreement to acquire Transamerica Life Canada and other businesses from Aegon N.V. for C$600 million. Wilton Re will fund the transaction with additional equity capital provided by CPPIB.

Asset Dispositions:

• Exited CPPIB's US$400 million investment in Formula One Group's private high yield loan with total income received over the investment period of approximately US$100 million, resulting in an annualized return of 14.3%.

• Following quarter end, CPPIB sold its 39.4% interest in a Denver office properties joint venture to Ivanhoé Cambridge for US$209 million. CPPIB had made an equity investment of US$114 million in the joint venture in 2007. Proceeds from the sale to CPPIB were approximately US$132 million.

Corporate Highlights:

• Appointed Rodolfo Spielmann to the new role of Managing Director & Head of Latin America. In this role, Rodolfo will oversee CPPIB's office in São Paulo, Brazil, providing leadership and coordination of CPPIB's investment activities in Latin America and management of advisory relationships. Rodolfo brings more than 30 years of experience in finance and consulting, most recently as South America Practice Leader with Bain & Company.

• Launched preparations to open an office in Mumbai, India, in mid-2015, expanding CPPIB's global presence in the Sub-continent. The Mumbai office will enable CPPIB to leverage local expertise and build important partnerships in India, which is a key long-term growth market for CPPIB.

About Canada Pension Plan Investment Board

Canada Pension Plan Investment Board (CPPIB) is a professional investment management organization that invests the funds not needed by the Canada Pension Plan (CPP) to pay current benefits on behalf of 18 million Canadian contributors and beneficiaries. In order to build a diversified portfolio of CPP assets, CPPIB invests in public equities, private equities, real estate, infrastructure and fixed income instruments. Headquartered in Toronto, with offices in Hong Kong, London, New York City and São Paulo, CPPIB is governed and managed independently of the Canada Pension Plan and at arm's length from governments. At September 30, 2014, the CPP Fund totalled $234.4 billion. For more information about CPPIB, please visit www.cppib.com.

CONTACT INFORMATION

• Linda Sims

  Director, Media Relations

  +1 416 868 8695

  lsims@cppib.com

  
  

  
  

  Mei Mavin

  Director, Corporate Communications

  +44 20 3205 3515

  
  

  mmavin@cppib.com

Canada Pension Plan portfolio assets up, president boasts of 'resilient portfolio'
The Canada Pension Plan Investment Board fund earned a 3.4-per-cent return on its investments in its latest quarter.

CPPIB said its assets grew by $7.6-billion in the fiscal second quarter ended Sept. 30, with assets increasing to $234.4-billion from $226.8-billion in the previous quarter.

Growth consisted of $7.5-billion in net investment income and $0.1-billion from new contributions.

The modest return is in stark contrast to much higher returns posted last year, as growth in global markets slows.

“During the quarter, our investment portfolio reflected mixed performance from the global public equity markets, balanced by solid returns from our fixed income assets and positive contributions from our private investments,” CPPIB president and chief executive officer Mark Wiseman said.

“We continue to realize the benefits of a globally diversified, resilient portfolio that is designed to deliver superior returns over the long term.”

Canada’s largest pension fund manager said on Thursday that the Chief Actuary of Canada has projected that the fund will attain a 4-per-cent rate of return after inflation on a long-term basis.

CPPIB has a five-year rate of return of 8.2 percent and a 10-year return rate of 5.6 percent, above the actuary’s assumptions.

For the period ended Sept. 30, the fund’s asset mix consisted of 33 percent in public equities, 18.3 percent in private equity, 32.5 percent in fixed income, 10.8 percent in real estate and 5.4 percent in infrastructure.

As of Dec. 31, 2012, the plan remains sustainable at the current contribution rate of 9.9 percent over a 75-year period, according to the most recent actuary’s report, released almost a year ago.

TORONTO -- The Canada Pension Plan Investment Board said it earned a 3.4 per cent return in its latest quarter.

The board, which manages portfolios on behalf of the Canada Pension Plan, had net assets of $234.4 billion for the period ended Sept. 30.

That was up from $226.8 billion at the end of the previous quarter.

It says the majority of the increase, or $7.5 billion, was due to net investment income.

The remaining $100 million was net CPP contributions.

CPPIB invests money not currently needed by the Canada Pension Plan to pay benefits.

The board says it's building an investment portfolio with a "exceptionally long investment horizon" and that is a more indicative of its performance than the returns of any given quarter or year.

"We continue to realize the benefits of a globally diversified, resilient portfolio that is designed to deliver superior returns over the long term," said president and chief executive Mark Wiseman in a statement.

During the quarter, CPPIB closed a deal to acquire a 39 per cent stake in Interparking, one of Europe's largest parking lot management companies, for about $546 million.

Based in Brussels and with operations across nine countries in Europe, Interparking owns 657 car parks in 350 cities.

Canada Pension Plan Assets Grow by 22% to C$234 Billion

By Scott Deveau November 13, 2014

Canada Pension Plan Investment Board, the country’s largest pension fund manager, said it returned 3.4 percent from its investments in the third quarter on the back of a strong public equity performance.

“Our investment portfolio reflected mixed performance from the global public equity markets, balanced by solid returns from our fixed-income assets and positive contributions from our private investments,” said Canada Pension Chief Executive Officer Mark Wiseman in the statement.

The fund manager, which handles the retirement savings of 18 million Canadians, reported net assets of C$234.4 billion ($207 billion), up 22 percent from a year ago

Sources BNN, CP, Bloomberg

Canadian Pension Fund Benefited From Luxembourg Tax Arrangement, ICIJ Says

Pension Board Used Shell Companies in Luxembourg on German Deal, According to Document

The pension fund’s beneficiaries include the Royal Canadian Mounted Police.

Among the hundreds of businesses whose tax-avoidance schemes in Luxembourg came to light Thursday is one unlikely suspect: a Canadian government-controlled entity.

The Public Sector Pension Investment Board, a Canadian crown corporation that manages $94 billion in pension assets for the country’s civil servants, used a complex series of shell companies in Luxembourg to avoid paying taxes on a major German property deal in 2008, according to documents published online by the International Consortium of Investigative Journalists.

Tom Fairless at wsj.com

Federal pension board used offshore 'scheme' to skirt foreign taxes

Here again is further evidence that shareholders, the public sector workers who invest in these pensions need to control the board of directors and the ethical investment principles and  ecology of their pension funds. ewp