CPP fund grew by more than $45 billion in fiscal second quarter on surging equities

In an interview in late September, CPPIB CEO John Graham said global upheaval from trade wars to geopolitical unrest could create opportunities and enhance the benefits of diversification. Photo by Gavin Young/Postmedia files

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The Canada Pension Plan Investment Board generated a net return of 5.4 per cent in the second quarter ended Sept. 30, pushing the CPP Fund’s net assets to $777.5 billion.

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The $45.8 billion increase in the fund’s assets consisted of $39.8 billion in net income and $6 billion in net transfers from the Canada Pension Plan (CPP).

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Returns from public equities drove performance in the quarter, CPP Investments said in a statement, adding that this reflected investor optimism around artificial intelligence, resilient corporate earnings and expectations of continued monetary easing in developed markets. 

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“Investments in private assets — particularly in credit, private equity, infrastructure and energy —  also performed well,” the statement said, adding that foreign exchange movements, primarily a stronger United States dollar, helped overall results.

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Among the transactions in the most recent quarter, CPP Investments committed $225 million to a loan to construct a “hyperscale” expansion to a data centre in Cambridge, Ont., funding 50 per cent of the total construction cost alongside Deutsche Bank. The pension management organization also paid about US$700 million for a minority position in NEOGOV, a provider of human resources and compliance software.

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John Graham, chief executive of the pension management organization, said diversification across asset classes and geographies continues to benefit the fund, with the strategy designed to make it less concentrated than public market indices. However, he cautioned that many markets are pricing assets at “robust” levels right now.

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“In this environment, we remain disciplined in line with our purpose to help pay pensions not only today, but for many decades to come, through many different economic cycles,” he said. 

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In an interview in late September, Graham said global upheaval from trade wars to geopolitical unrest could create opportunities and enhance the benefits of diversification.

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“One of the challenges for years of being a global investor is that the correlation between countries was so high that the diversification benefit wasn’t as strong as it could have been — because of the linkages,” he said. “We’re in a place now where countries are behaving a little bit differently because they’re decoupling a little bit from each other…. You (could) have an opportunity to really pick countries.”

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The CPP fund, which includes additional accounts created following enhancements to the Canada Pension Plan that kicked in in 2019, has a 10-year annualized net return of 8.8 per cent.

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So far this fiscal year, the net return is 6.5 per cent. In the first six months, the fund increased by $63.1 billion, consisting of $47.3 billion in net income plus $15.8 billion in net transfers from the CPP.

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Since CPP Investments started investing funds not needed to pay CPP benefits in 1999, $539.4 billion in cumulative net income has been generated, accounting for nearly 70 per cent of the fund.