Canada's largest pension fund, CPP Investments, reported an 8.0% return for the latest fiscal year ending March 31, raising its net assets to $632.3 billion from $570.0 billion the previous year. This increase included $46.4 billion in net income and $15.9 billion in net transfers from the Canada Pension Plan.
Despite the solid performance, the fund significantly underperformed its reference portfolio, which saw a 19.9% return. The reference portfolio, comprising 85% global equities and 15% Canadian bonds, benefited from significant gains in the seven largest U.S. tech stocks, dubbed the "Magnificent Seven."
CPP Investments' CEO, John Graham, attributed the lower return to the fund's diversified investment strategy, which includes infrastructure, real estate, private equities, and credit, rather than focusing heavily on high-volatility stocks. "Against a very simple, naive construct like the reference portfolio that has become very concentrated with Magnificent Seven, I think we would expect to have wild swings in performance right now," Graham explained.
Over the past decade, CPP Investments' returns have been just 0.3% shy of the reference portfolio. Looking ahead, Graham anticipates that generating returns will be more challenging due to factors like persistent inflation and geopolitical tensions.
The fund has been shifting its focus from emerging markets to developed markets, although this has not resulted in a higher proportion of investments in Canada. As of March, only 12% of the fund's portfolio was in Canada, down from 31% in 2014. Graham noted that while Canada presents interesting opportunities, especially in the energy sector, there is a need for growth and a supportive investment environment.
Major transactions last year included a $905 million increase in holdings in U.S.-based renewables developer Pattern Energy Group and a potential $2.9 billion investment in Italy's largest fixed telecom network, NetCo. These moves align with CPP Investments' goal to double its green and transition assets by 2030.
In the real estate sector, the fund reduced its exposure to 8%, suffering a 5% loss due to higher interest rates and the shift to remote work. "Office had a challenging year, and we took some lumps on it, but made tough decisions and I think we're in a great position going forward," Graham said.
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