The Canadian Pension Plan reported its fiscal third quarter, with a 1.8% return on investments between October 1 and December 31, 2009. The asset mix of the fund is as follows:
* Equities represented 56.1 per cent of the investment portfolio or $69.5 billion. That amount consisted of 43.9 per cent public equities valued at $54.4 billion and 12.2 per cent private equities valued at $15.1 billion.
* Fixed income, which includes bonds, money market securities, other debt and debt financing liabilities represented 30.0 per cent or $37.3 billion.
* Inflation-sensitive assets represented 13.9 per cent or $17.2 billion. Of those assets,
o 5.8 per cent consisted of real estate valued at $7.1 billion
o 4.9 per cent was infrastructure assets valued at $6.1 billion
o 3.2 per cent was inflation-linked bonds valued at $4.0 billion.
The TSX reported a 3.1% gain over the same period of time, so when one considers their asset mix (together with the fact that fixed income yields have slightly risen, thus resulting in value declines), the CPP had an average quarter.
The CPP requires a 6.2% nominal rate of return (4.2% real rate) in order to meet its long term investment objectives. While this number is realistic, it will also be challenging to realize these returns strictly within the North American confines – in order to achieve disproportionate returns, the CPP investment managers need to be looking abroad. Investing outside your known jurisdictions, however, can be very hazardous to your financial health, so I hope these guys know what they are doing.
Since April 1999 the CPP has realized 5.3% nominal returns, which means they are trailing by about 15% when you do the math – the actuary will likely have to boost the target rate of return needed to keep the CPP solvent to around 6.4% in order to catch up.
Still, the CPP is light-years ahead of the USA equivalent, social security. Canada did most of the heavy lifting on this issue in the 1990’s and it is one of the unspoken achievements of the Jean Chretien administration to put in a relatively permanent fix to this issue.