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Dear fellow contributors and beneficiaries,
It has been another challenging year for investors and Canadians. We remained in a period of low returns and the cost of living continued to rise. Despite the recent and prevailing economic environment, I have good news to share. At CPP Investments, our strong and resilient long-term performance has resulted in a 10-year annualized net return of 10.0%. This demonstrates a proven track record of delivering the returns needed to help sustain the Canada Pension Plan (CPP) Fund for generations. We are firmly focused on delivering results over the long term and will not allow short-term conditions to distract us from our single, overarching goal: helping provide Canadians with financial security during their retirement.
We know these are difficult times. We are navigating the effects of the war in Ukraine, inflation, higher interest rates, climate change and more. Despite these events, the Fund is holding steady. Our portfolio is solid and has kept the Fund secure through the inevitable ups and downs investors experience during an economic cycle.
Both our portfolio and organization performed well in a challenging year. The portfolio returned (after all expenses) 1.3% and the CPP Fund grew to $570 billion. These gains – despite a significant decline in global equity and fixed income markets – were the result of our active management strategy, which enabled us to outperform most major indexes. We benefitted from solid returns on investments in renewable energy assets and infrastructure, and gains in U.S. dollar-denominated assets, which benefited from foreign exchange gains. As a result, we delivered $2 billion (1.3%) in dollar value-added over the Fund benchmarks. In fiscal 2023, the Office of the Chief Actuary of Canada released its triennial review of the CPP, which concluded the existing benefit levels are sustainable for at least the next 75 years.
We see the market volatility from fiscal 2023 continuing through 2024 and market returns may continue to be low over the short and medium term. That is why we focus on strengthening the resilience of our portfolio over the long-term horizons we care about most. Competition for attractive opportunities will remain fierce and may intensify, but we will stay focused and disciplined.
To safeguard and grow the assets of the CPP Fund, we focused on several key areas in fiscal 2023.
Built for times like these
For more than 15 years, we have been building an organization that seeks to generate above-market returns by searching the world for the most promising investment opportunities and constructing a broadly diversified, multi-asset class portfolio. Nevertheless, we must operate in a state of continuous improvement, always challenging the status quo and pushing ourselves to the next level. To complement our global reach and diversification, we made changes to the structure of our organization this fiscal year. We advanced our risk management and took steps in working together more closely and effectively, as one cohesive enterprise.
Strong risk management
These changes include further enhancing our risk management practices. Strong risk management allows for the efficient allocation of risk to the best investment opportunities. This is most visible in times of market turmoil. For example, we made the decision years ago to avoid investments in Russia because of the potential for significant political risk.
In fiscal 2023, we also created distinct roles for our Chief Risk Officer (CRO) and Chief Financial Officer (CFO), appointing Kristen Walters as CRO and Kristina Fanjoy as CFO. After many years of honing our approach to active management and integrated risk management, we are confident these steps will serve the Fund well.
We made significant investments and divestments across the globe. Some of this year’s highlights include increased investment in Octopus Energy, a global clean energy tech pioneer and one of the largest renewables investors in Europe. We sold six logistics warehouses in Western China in the Goodman China Logistics Partnership. The partnership was established with Goodman Group in 2009 to own and develop logistics assets in mainland China. And we closed one of Latin America’s largest private equity deals with our investment in the rapidly growing discount food retailer D1, marking our first-ever private equity investment in Colombia.
After a seven-year investment, we sold our stake in the Chicago Skyway, a toll road that forms a critical link between downtown Chicago and its southeastern suburbs. We expanded our joint venture with Tricon Residential, which will focus on developing high-quality rental apartments near major transit and employment nodes in the Greater Toronto Area. Finally, in our largest buyout deal of the year, we announced an investment in Qualtrics, positioning it to drive innovation on its path to becoming an enterprise cloud software platform leader.
Maturing our organizational structure
As the Fund grows, our ability to excel will depend on how well we execute our investment activities and conduct our operations. As our global reach and diversification expands, a challenge we face is ensuring we continue to work together as a single, cohesive enterprise. To that end, we brought together complementary functions under a new Chief Operating Officer, Jon Webster. Among Jon’s responsibilities is partnering with our Chief Sustainability Officer, Richard Manley, to deliver on the Fund’s operational journey to net zero. This intensified executive oversight on reducing greenhouse gas emissions complements the Fund’s ongoing efforts to deepen the integration of climate change considerations into the entire investment lifecycle. Our latest report has an update on our path to net zero, including details on our latest sustainability-related achievement: achieving carbon neutrality across Scope 1, 2 and 3 (business travel) emissions.
Our people, your investors
We continue to recruit and retain some of the brightest talent in Canada and around the world to work in your best interests by investing the money of the CPP Fund. Our highly qualified people, working across nine offices globally, remain our most important asset, and we took several important steps to support them over the past year. We continued to challenge ourselves to be more equitable, diverse and inclusive, which supports better overall business strategy and decision-making. This has helped us become a more purposeful and connected workplace.
Alongside flexibility, we know opportunities for professional advancement are critical to promoting employee well-being. We have put a new emphasis on training to support employee retention, skill building and talent attraction. Many of our more than 2,000 employees enhanced their skills by participating in development sessions to improve their ability to drive returns and add value to the Fund.
There is no doubt a lot can happen in one year. That is why providing you with timely and relevant information matters. We hosted in-person public meetings in nine Canadian cities this past year. Recordings of these public meetings are available on our website. While I have shared an overview of what the Fund achieved in fiscal 2023 in this letter, I encourage you to sign up for regular updates about our organization and performance on our website and read this year’s Annual Report.
I would like to thank our Chairperson, Heather Munroe-Blum, and the entire Board of CPP Investments. Next year will be Heather’s last year as our Board Chairperson after capably serving for nine years. Thank you, Heather, for your meaningful support and guidance – we truly appreciate your leadership.
I would also like to thank my Senior Management Team for their leadership, insights and dedication. None of our achievements would be possible without the efforts of our more than 2,000 colleagues. Their creativity, energy and commitment to our goals drive the Fund’s long-term success. I offer my colleagues my sincerest thanks and appreciation for their efforts.
In an era of uncertainty, Canadians can find confidence in a strong and stable CPP Fund with benefits that will be there for them in retirement. Our organization was built for times like these. The environment may be challenging, but we will rise to the occasion, drawing strength from our guiding principles of integrity, partnership and high performance. More than 21 million contributors and beneficiaries, like you, are counting on us to deliver. Thank you for trusting us.