The Canada Pension Plan Investment Board (CPPIB) has reported a strong quarter, with its assets reaching $590.8 billion at the end of December 2023. This represents a gain of 3.4% over the previous quarter and brings the fund closer to its target of $600 billion.
Quarterly Return
The quarterly return was driven by the performance of global equity and fixed income markets, which contributed to the growth of the fund. The CPPIB also attributed part of the gain to investments in credit, private equity, energy, and infrastructure assets. However, the return was partially offset by foreign exchange losses due to a stronger Canadian dollar relative to the US dollar.
Base CPP Account
The base CPP account ended the third quarter with net assets of $557.7 billion, representing an increase of $11.4 billion from the previous quarter. The gain consisted of $17.8 billion in net income less $6.4 billion in CPP outflows. The base CPP account has a five-year annualized net return of 7.7%.
Additional CPP Account
The additional CPP account ended the third quarter with net assets of $33.1 billion, representing an increase of $3.3 billion from the previous quarter. The gain consisted of $1.6 billion in net income and $1.7 billion in net additional CPP contributions. The five-year annualized net return of the additional CPP account is 5.3%.
Fund Growth
The overall fund, which includes both the base and additional CPP accounts, has increased by $20.7 billion in the first nine months of the fiscal year. This represents a gain of 2.6% over the same period last year and brings the fund’s 10-year annualized net return to 9.3%.
Long-term Sustainability
A triennial review by the chief actuary, published in December 2022, found both the base and additional CPP accounts to be sustainable over the long term at the legislated contribution rates. The projections are based on the assumption that, over the 75 years following 2021, the base CPP account will earn an average annual rate of return of 3.69% above Canadian consumer price inflation and the additional CPP account will earn an average annual real rate of return of 3.27%.
Conclusion
The CPPIB’s strong quarterly performance brings its assets closer to the target of $600 billion. The fund’s long-term sustainability is also a positive indicator, with both the base and additional CPP accounts projected to be sustainable over the next 75 years. However, the fund’s growth will continue to be influenced by market performance and foreign exchange rates.
Recommendations
- Investors should consider investing in a diversified portfolio of assets to minimize risk.
- The CPPIB’s strong quarterly performance is a positive indicator for long-term investors.
- Market volatility can impact the fund’s growth, so investors should be prepared for fluctuations in asset values.
References
- Canada Pension Plan Investment Board. (2023). Quarterly Report.
- Chief Actuary. (2022). Triennial Review of the Canada Pension Plan.
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