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Inside the Canada Pension Plan’s Record-Breaking Year

Canada’s largest pension fund set a record net annual return of 20.4 percent in the fiscal year ending in March.

The Canada Pension Plan Investment Board just had its strongest year in the history of the pension fund. 

On March 31, CPP Investments ended its fiscal year with net assets of C$497.2 billion ($411.9 billion USD). That’s a jump of C$87.6 billion from its assets under management at the end of 2020, according to a Thursday statement. Over the 12-month period, the fund returned 20.4 percent net of all costs, the highest return since its 1999 inception.

“The fiscal year was bookended by extremes, with markets reaching new record highs following the significant lows just 12 months earlier,” John Graham, president and chief executive officer of CPP Investments, said in a statement. “Our discipline ensures we keep the fund on track, demonstrating resilience in a crisis and strong growth on the upside. With optimal diversification, including access to private assets, the fund continues to perform as designed.”

Speaking to Institutional Investor, senior managing director Michel Leduc emphasized CPP Investments’s “very healthy appetite for equity risk” as a key factor in its 2021 success. Specifically, Leduc said private equity did exceptionally well in the last fiscal year. 

“If you were going to make an analogy to a person, we’re sort of like that 20-year-old that has a good income and is investing, and who would have a healthy appetite to equities,” Leduc said. “We were able to benefit from the rise in equity markets and diversify globally.”

“Quite Pleased” With Private Equity

In Canadian, foreign, and emerging private equities, CPP saw returns of 22.8 percent, 34 percent, and 38.5 percent, respectively, during the 2021 fiscal year. The contrast from the 2020 fiscal year is stark: Last year, as the onset of the Covid-19 pandemic sent markets into a tailspin, the fund saw negative returns in local private equities, while returns for foreign and emerging PE hovered at 6 percent and 8 percent. 

Leduc said CPP Investments is also happy with its success in public equities, another asset class that saw massive improvement from 2020 to 2021. For instance, at the end of the 2020 fiscal year, CPP recorded a negative return of -12 percent in Canadian public equities investments. In 2021, that figure jumped to 40.8 percent.

As for that asset classes that didn’t perform so well this year, CPP saw negative returns in marketable government bonds and real estate assets

“All six departments contributed to that increase; now, of course, they didn’t all contribute equally,” Leduc said. “There were a few more headwinds on the real-asset side, particularly the real estate portfolio. But we’re quite, quite pleased with the performance of our private equity portfolio.” 

According to Leduc, the fund’s success is a testament to the importance of optimal portfolio diversification, a multi-strategy approach, patience, and a strong team. 

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