May 15, 2003
The total assets available to the Canada Pension Plan had a net loss of $1.1 billion producing a negative return of 1.5% in the fiscal year ended March 31, 2003. This compares with a $2.3 billion gain in the previous fiscal year for a positive 5.7% return. At March 31, 2003, consolidated CPP assets stood at $55.6 billion.
Of the total assets, 69% consisted of about $38.1 billion in fixed-income securities held by the Canada Pension Plan and administered by the Department of Finance in Ottawa, and 31% of the total portfolio included $17.5 billion in equities and real estate managed by the CPP Investment Board in Toronto.
The fixed-income securities were comprised of $31.0 billion in federal and provincial government bonds and $7.1 billion in an interest earning cash deposit. These assets generated investment income of $3.0 billion for an estimated 8.4% return. In the prior fiscal year, fixed-income assets totalled $39.3 billion and earned $2.0 billion for a 5.0% return. During the year a portion of the bonds matured and the maturity proceeds were transferred to the CPP Investment Board.
The equity portfolio consisted 89% of public equities, 9% in private equity portfolios and 2% in real estate (a combination of private real estate holdings and investments in publicly-traded real estate companies.) The $17.5 billion equity and real estate portfolio compared with $14.3 billion a year earlier and included $7.3 billion in cash transfers from the CPP during the 2003 fiscal year. Equities and real estate lost $4.1 billion in fiscal 2003 for a negative 21.1% return, compared with a $316 million investment gain in the previous year for a 3.4% return. ”The twelve months ended March 31, 2003 were difficult ones for pension fund fiduciaries around the world. Global equity markets continued their punishing slump, producing some of the worst annual returns in a century, while fixed income markets delivered solid returns, as interest rates fell,” said CPP Investment Board President and Chief Executive Officer, John MacNaughton.
“The consolidated CPP assets performed better than might have been expected because a relatively high percentage was invested in fixed income securities. As a result, losses were mitigated but not eliminated,” MacNaughton said. Based on actuarial projections, annual CPP contributions are expected to exceed annual benefit payments until 2021, providing an 18-year period before a portion of the investment income generated by the CPP Investment Board is needed to help pay pensions. ”While investing during declining markets requires fortitude, it affords us an excellent opportunity to invest in equity markets at lower values and is consistent with our investment strategy to build long-term value to help sustain the CPP, ” MacNaughton said. “Capital markets history gives us confidence that we are right in staying the course. We will continue building and diversifying our portfolio steadily and patiently, while remaining focused on the long term.” On April 3, 2003, Parliament approved legislation, now subject to the consent of the provinces, to transfer responsibility for managing the CPP bonds and cash deposits to the CPP Investment Board over the next three years. The annual report of the CPP Investment Board is available on its website. The CPP Investment Board is a crown corporation created by an Act of Parliament in December 1997. It invests in capital markets the funds not needed by the Canada Pension Plan to pay current pensions. Cash flows are currently invested in equities and real estate 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. A teleconference has been scheduled for May 15, 2003 at 10:30 a.m. ET to discuss these results. Media representatives that would like to participate, please contact Lisa Thompson at 416-868-4682 or firstname.lastname@example.org. The teleconference will also be broadcast on our Web site at www.cppib.ca.
For further information contact:
John A. MacNaughton
President and Chief Executive Officer
Communications and Stakeholder Relations