Net return of 11.8%
and $37.8 billion increase in assets
All figures in Canadian dollars unless otherwise noted.
TORONTO, ON (May 18, 2017): The CPP Fund ended its fiscal year
on March 31, 2017 with net assets of $316.7 billion compared to $278.9 billion
at the end of fiscal 2016. The $37.8 billion increase in assets for the year
consisted of $33.5 billion in net income after all CPPIB costs and $4.3 billion
in net Canada Pension Plan (CPP) contributions. The portfolio delivered a gross
investment return of 12.2% for fiscal 2017, or 11.8% net of all costs.
“This was a strong year for the
CPP Fund as we achieved one of the largest yearly increases in assets since the
inception of CPPIB,” said Mark
Machin, President & Chief Executive Officer, Canada Pension Plan Investment
Board (CPPIB). “As always, we continue to focus on longer-term performance.
Year-by-year results will swing, but it is noteworthy that our 11.8% five-year
return mirrors our annual return. We believe this is a strong indicator of our
ability to generate steady, sustainable returns for generations of
beneficiaries to come.”
In fiscal 2017, CPPIB continued to
prudently execute its long-term investment strategy to diversify the CPP Fund
across multiple asset classes and geographies. Through four investment
departments, the organization completed 182 global transactions.
“The composition of our highly diversified
long-term portfolio continues to position us well, allowing us to take
advantage of the strong performance of global stock markets this year, amid
significant global geopolitical developments,” said Mr. Machin. “Our diverse investment
programs generated strong earnings, while fixed income investments remained
In the 10-year period up to
and including fiscal 2017, CPPIB has now contributed $146.1 billion in
cumulative net income to the Fund after all CPPIB
costs. Since CPPIB’s inception in 1999, it has contributed $194.1
billion. For the five-year period, the net nominal return was 11.8%,
contributing $129.6 billion in cumulative net income to the Fund after all CPPIB costs.
Five and 10-Year Returns1, 2
(for the year ending March 31, 2017)
building a portfolio capable of delivering superior performance over multiple
generations to help ensure the long-term sustainability of the CPP,” said Mr.
Machin. “We remain disciplined in doing this, investing only in assets that we
believe will collectively deliver superior risk-adjusted returns over time. Our
portfolio is designed to withstand short-term market uncertainty.”
CPPIB’s 10-year annualized net nominal rate of return of 6.7%, or 5.1%
on a net real rate of return basis, was above the Chief Actuary’s assumption
over this same period. The real rate of return is reported net of all CPPIB
costs to be consistent with the Chief Actuary’s approach.
the most recent triennial review released in September 2016, the Chief Actuary
of Canada reaffirmed that, as at December 31, 2015, the CPP remains sustainable
at the current contribution rate of 9.9% throughout the forward-looking 75-year
period covered by his report. The Chief Actuary’s projections are based on the
assumption that the Fund’s prospective real rate of return, which takes into
account the impact of inflation, will average 3.9% over 75 years.
The Chief Actuary’s report also indicates that CPP
contributions are expected to exceed annual benefit payments until 2021, after
which a small portion of the investment income from CPPIB will be needed to
help pay pensions. In addition, the report confirmed that the Fund’s
performance was well ahead of projections for the 2013-2015 period as
investment income was 248% or $70 billion higher than anticipated.
The CPP’s multi-generational
funding and liabilities give rise to an exceptionally long investment horizon.
To meet long-term investment objectives, CPPIB continues to build a portfolio
designed to generate and maximize long-term
returns at an appropriate risk level. Accordingly, long-term investment
returns are a more appropriate measure of CPPIB’s performance than returns in
any given quarter or single fiscal year.
Relative Performance Against the Reference
CPPIB also measures
its performance against a market-based benchmark, the Reference Portfolio,
representing a passive portfolio of public market indexes that reflect the
level of long-term total risk that we believe is appropriate for the Fund.
provide a clearer view of CPPIB’s performance given our long-term horizon, we
track cumulative value-added returns since the April 1, 2006 inception of the
benchmark Reference Portfolio. Cumulative value-added over the past 11 years totals
after all CPPIB costs.
In fiscal 2017, the Reference
Portfolio’s return of 14.9% outperformed the Investment Portfolio’s net return
of 11.8% by 3.1% The Reference Portfolio return was $8.2 billion above the
Investment Portfolio’s return, after deducting all costs from the Investment
Portfolio and CPPIB’s operations. Over the five- and 10-year periods, the
Investment Portfolio continued to outperform the Reference Portfolio by $5.6
billion and $6.7 billion, respectively, after all CPPIB costs.
markets soar, as they generally did this year, we expect the public equity-based
Reference Portfolio benchmark to perform exceptionally well,” said Mr. Machin. “Over
the longer term, the Investment Portfolio has outperformed the Reference
Portfolio over both the past five- and 10-year periods. Given our deliberate
choice to build a prudently diversified portfolio beyond just public equities
and bonds, we expect to see swings in performance relative to this benchmark,
either positive or negative, in any single year. Our investment portfolio is
designed to deliver value-building growth and be resilient during periods of
economic stress while adding value over the long term.”
This fiscal year reflected a decline in the operating
expense ratio for the second year in a row, as well as a slowdown in the growth
of CPPIB’s operating expenses. We are committed to maintaining cost discipline
in the years ahead. Approximately 32% of our personnel expenses are denominated
in foreign currencies and that percentage is expected to increase in the coming
years as we continue to hire specialized talent and skills where most of our
investing activities occur.
To generate the $33.5 billion of net income from
operations after all costs, CPPIB incurred total costs of $2,834 million for
fiscal 2017, compared to $2,643 million in total costs for the previous year. CPPIB total costs for fiscal 2017 consisted of $923 million,
or 31.3 basis points, of operating expenses; $987 million in management fees
and $477 million in performance fees paid to external managers; and $447
million of transaction costs. CPPIB reports on these distinct cost
categories, as each is materially different in purpose, substance and
variability. We report the investment management fees and transaction
costs we incur by asset class and report the net investment income our programs
generate after deducting these fees and costs. We then report on total Fund
performance net of these fees and costs, as well as CPPIB’s overall operating
management fees increased due in part to the continued growth in the level of
commitments and the average level of assets with external managers, and the
year-over-year growth in the performance fees paid. Notably, performance fees
reflect the strong performance of our external managers.
Transaction costs marginally increased by $10 million compared
to the prior year. This year, we completed 19 global transactions valued at
over $500 million, in addition to other transactions assessed across the
investment groups. Transaction costs vary from year to year as they are
directly correlated to the number, size and complexity of our investing
activities in any given period.
Portfolio Performance by Asset Class
Portfolio performance by asset class is included in the table below. A more
detailed breakdown of performance by investment department is included in the
CPPIB Annual Report for fiscal 2017, which is available at www.cppib.com.
We continued to diversify the portfolio by the return-risk characteristics of various
assets and countries during fiscal 2017. Canadian assets represented 16.5% of the portfolio,
and totalled $52.2 billion. Assets outside of Canada represented 83.5% of the portfolio,
Highlights for the year included:
Public Market Investments
an additional C$400 million for a 1.4% stake in Kotak Mahindra Bank (Kotak).
Kotak is a leading private-sector bank holding company in India, with
additional lines of business in life insurance, brokerage and asset management.
To date, CPPIB has invested a total of C$1.2 billion, representing a 6.3% ownership
stake in the company.
US$280 million in convertible preferred equity securities of a parent company
of Advanced Disposal Services, Inc. (Advanced Disposal), which converted to
approximately 20% common equity of Advanced Disposal upon its initial public
offering. Based in Ponte Vedra, Florida, Advanced Disposal is the fourth
largest solid waste company in the U.S. with operations across 16 states and
A$300 million for a 9.9% ownership in Qube Holdings Limited (Qube), the largest
integrated provider of import-export logistics services in Australia. The
investment helped fund Qube’s share of the purchase of Asciano Limited, which
was acquired by a consortium of global investors including CPPIB.
US$137 million in Daesung Industrial Gases Co., Ltd. (Daesung) for an 18%
ownership stake, alongside MBK Partners. Headquartered in Seoul, Daesung is the
leading industrial gas producer in South Korea servicing a diversified
blue-chip customer base with a resilient business model supported by long-term
a 3.3% direct ownership interest in Bharti Infratel Limited for US$300 million,
as part of the purchase of a 10.3% stake alongside funds advised by KKR, from
India’s Bharti Airtel Limited. Bharti Infratel deploys, owns and manages
telecom towers and communication structures for various mobile operators, and
is India’s leading player.
- Announced a
combined investment of US$500 million with TPG Capital for a 17% stake in MISA
Investments Limited, the parent company of Viking Cruises. TPG Capital and
CPPIB each invested US$250 million to support and accelerate Viking Cruises’
growth initiatives and strengthen the company’s balance sheet. Viking Cruises
is a leading provider of worldwide river and ocean cruises, operating more than
60 cruise vessels based in 44 countries.
- Acquired an
approximate 48% stake in GlobalLogic Inc., a global leader in digital product
development services, from funds advised by Apax Partners LLP. Based in San
Jose, California, GlobalLogic helps clients build innovative digital products
to enhance customer engagement, user experience and service capabilities.
- Acquired 100%
of Ascot Underwriting Holdings Ltd. and certain related entities (Ascot),
together with Ascot’s management, for a total consideration of US$1.1 billion.
Based in London, England, Ascot is a Lloyd’s of London syndicate and a global
specialty insurance underwriter with expertise spanning multiple lines of
businesses, including property, energy, cargo, casualty and reinsurance.
- Invested additional
equity into Teine Energy Ltd. (Teine) to support Teine’s acquisition of the
Southwest Saskatchewan oil-weighted assets of Penn West Petroleum Ltd. for a
cash consideration of C$975 million. Since 2010, CPPIB has invested
approximately C$1.3 billion in Teine and holds approximately 90% of the company
on a fully diluted basis.
- Acquired three U.S. student housing portfolios for
approximately US$1.6 billion through a joint venture entity owned by CPPIB, GIC
and The Scion Group LLC (Scion). CPPIB and GIC each own a 45% interest in these
portfolios and Scion owns the remaining 10%. The joint venture’s
well-diversified US$2.9 billion national portfolio now comprises 48 student
housing communities in 36 top-tier university markets, totalling 32,192 beds.
- Entered into two agreements to invest alongside Ivanhoé
Cambridge and LOGOS, an Australian-based real estate logistics specialist, to
develop and acquire modern logistics facilities in Singapore and Indonesia. In
Singapore, CPPIB will initially commit S$200 million for an approximate 48%
stake in the LOGOS Singapore Logistics Venture. CPPIB will also initially
commit US$100 million in equity for an approximate 48% stake in LOGOS Indonesia
- Acquired a 50% interest in a portfolio of high-quality
office properties in downtown Toronto and Calgary at a gross purchase price of
C$1.175 billion from Oxford Properties Group, which will retain the remaining
50% interest. The 4.2-million-square-foot portfolio includes seven office buildings
with a broad mix of tenants. The transaction brings the total size of the
jointly owned Oxford-CPPIB office portfolio to over 12 million square feet.
- Acquired a 33% stake in Pacific National for
approximately A$1.7 billion, as part of the consortium that acquired Asciano
Limited. Pacific National is one of the largest providers of rail freight
services in Australia.
Investment highlights following the year end include:
- Signed an agreement alongside Baring Private Equity Asia to
acquire all the outstanding shares of, and to privatize, Nord Anglia Education,
Inc. (Nord Anglia) for US$4.3 billion, including the repayment of debt. Nord
Anglia operates 43 leading private schools globally in 15 countries in China,
Europe, Middle East, North America and South East Asia. The transaction is
subject to shareholder approval and customary closing conditions.
- Signed a definitive agreement to acquire Ascend Learning LLC
(Ascend), a leading provider of educational content, software and analytics
solutions, in partnership with private equity funds managed by Blackstone and
Ascend management. The transaction is subject to customary regulatory approvals
and customary closing conditions.
- Formed a strategic investment platform with The
Phoenix Mills Limited (PML) to develop, own and operate retail-led mixed-use
developments across India. CPPIB will initially own 30% in the platform, known
as Island Star Mall Developers Pvt. Ltd., a PML subsidiary, which owns Phoenix
MarketCity Bangalore, for an equity investment of approximately C$149 million.
CPPIB’s total commitment to the platform is up to approximately C$330 million,
which will increase CPPIB’s stake in the platform up to 49%.
- Signed an agreement to sell CPPIB’s 25% stake in AWAS, a
Dublin-based aircraft lessor, to Dubai Aerospace Enterprise. The sale was made
alongside Terra Firma. CPPIB had been an investor in AWAS since 2006.
- Sold CPPIB’s 45% ownership interest in 1221
Avenue of the Americas, a Midtown Manhattan office property. Net proceeds to
CPPIB from the sale were approximately US$950 million. CPPIB acquired the
ownership interest in 2010.
- An affiliate of CPPIB Credit Investments Inc.
sold a 16% equity stake in Antares Holdings (Antares) to a private investment
fund managed by Northleaf Capital Partners (Northleaf). Northleaf and Antares
are forming a broader strategic relationship, which will include developing
separately managed accounts and other investment solutions designed
specifically for Canadian asset managers, institutional investors and private
- Welcomed the appointments of three new members to CPPIB’s
Board of Directors for three-year terms:
Tai, appointed in June 2016 as our first non-resident Director, also serves on
the boards of various publicly listed companies, including HSBC Holdings PLC,
Eli Lilly & Company and MasterCard Incorporated.
Everett, appointed in February 2017, who is President, Corporate Secretary and
Director of Royal Canadian Securities Limited and has served on a number of
publicly listed companies.
Montalbano, appointed in February 2017, also serves on a number of corporate
boards, including Canalyst Financial Modeling Corporation, Wize Monkey Inc. and
Eupraxia Pharmaceuticals Inc.
- Signed a Memorandum of Understanding with the
National Development and Reform Commission of the People’s Republic of China to
offer CPPIB’s expertise in assisting Chinese policy-makers as they address the
challenges of China’s aging population, including pension reform and the
promotion of investment in the domestic senior care industry by global
investors. Related to this agreement, CPPIB launched the Chinese edition of “Fixing the Future: How Canada’s Usually
Fractious Governments Worked Together to Rescue the Canada Pension Plan”.
- CPPIB Capital Inc. (CPPIB
Capital), a wholly owned subsidiary of CPPIB, completed two international debt
offerings, comprising three-year term notes totalling US$2 billion, and
five-year term notes totalling US$2 billion. CPPIB utilizes a conservative amount
of short- and medium-term debt as one of several tools to manage our investment
operations. Debt issuance gives CPPIB flexibility to fund investments that may
not match our contribution cycle. Net proceeds from the private placement will
be used by CPPIB for general corporate purposes.
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 20
million 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,
Luxembourg, Mumbai, New York City, São Paulo and Sydney, CPPIB
is governed and managed independently of the Canada Pension Plan and at arm’s
length from governments. At March 31, 2017, the CPP Fund totalled $316.7 billion.
For more information about CPPIB, please visit www.cppib.com or
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