August 9, 2002
The total assets available to the Canada Pension Plan had net income of minus $0.4 billion in the three months ended June 30, 2002 and produced an estimated negative 0.3% rate of return.
However, the total assets grew by $2.3 billion to $56 billion as a result of increased CPP contributions by employers and employees, net of benefits paid out.
On June 30, 2002 the assets consisted of $38.8 billion in fixed-income securities held by the Canada Pension Plan and administered by the Department of Finance in Ottawa, and $17.1 billion in equities managed by the CPP Investment Board in Toronto.
The fixed-income securities consisted of $31.9 billion in federal and provincial government bonds and $6.9 billion in an interest-earning cash reserve. These assets generated investment income of $1.1 billion during the three-month period (the first quarter of fiscal 2003) for an estimated 3.2% return.
The equity portfolio consisted of 95% public equities and 5% private equities and cash. Equities increased by $2.8 billion to represent 31% of total assets available to the Canada Pension Plan. The CPP Investment Board received $4.3 billion from the Canada Pension Plan during the period.
Equities lost $1.5 billion in the quarter for a negative 8.7% return, compared with a negative 9.0% return for the total portfolio benchmark that measures market performance. Canadian investments lost 7.9% versus 8.3% for the benchmark, while foreign investments had a negative 11% that matched the benchmark.
“While recent equity markets were bad news for most investors, they were great buying opportunities for us,” said CPP Investment Board President and Chief Executive Officer, John A. MacNaughton. “We are a cash-rich investor. We also have approximately 20 years before we will be expected to provide income to the Canada Pension Plan to help pay pensions. Consequently, any ongoing weakness in markets for the next few years will enable us to continue to build our equity portfolio at prices well below those that will exist in future decades. Realistically, however, we expect choppy markets in the next few years with sharp short-term swings in stock prices.”
In view of the long investment horizon, Mr. MacNaughton added that the CPP Investment Board does not try to time markets, and invests funds as soon as they are received from the Canada Pension Plan.
The CPP Investment Board has previously commented that it expects equity returns to continue below their historical levels over the next few years before returning to past levels and outperforming bonds over the long term.
The CPP Investment Board is a crown corporation created by an Act of Parliament in December 1997. It invests in capital markets funds not needed by the Canada Pension Plan to pay current pensions. Cash flows are currently invested in equities to balance the cash and bonds owned by the Canada Pension Plan. By increasing the long-term value of funds, the CPP Investment Board will help the Canada Pension Plan to keep its pension promise to Canadians. Based in Toronto, the CPP Investment Board is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. Its fiscal year is from April 1 to March 31.
For further information contact:
John A. MacNaughton
President and Chief Executive Officer