On 31st December 1997, Canada Pension Plan Investment Board (CPPIB) took the first step towards investing pension for Canadians. Twenty-three years later, the Canada Pension Plan Investment Board is among the largest pension plan investors in the world. The fund is managing $497.2 billion in assets as of March 2021.
Pensions affect all workers and employers in Canada because they all contribute to the fund. That’s why the CPP annual report is crucial to Canadians. The report may either encourage the working class to keep making their contributions or look for alternatives.
Hence, you cannot ignore the impact of CPP statements; so, here’s a detailed analysis of the 2021 CPP report.
CPPIB: Investment objectives
You already know that the CPPIB focuses on global investment management, and:
- Its primary goal is to invest the Canada Pension Fund (CPP) assets to achieve maximum rate of returns. That way, Canadians can enjoy financial stability in retirement.
- It is also mandated to protect the interest of CPP contributors and beneficiaries over generations.
What does CPPIB invest in?
To achieve the above objectives, the CPPIB invests in established and emerging public and private equity worldwide.
The equity is from different asset classes so that the fund can withstand market volatility. Consequently, they have long-term results that sustain Canadian pensioners throughout their retirement.
Total fund market classification as of 31st March 2021
- Emerging markets 21.0%
- Developed markets 79.0%
Asset mix as of 31st March 2021
- Infrastructure 8.3%
- Real estate 8.7%
- Government bonds, cash and absolute return strategies 9.6%
- Credit 13.5%
- Public equities 29.2%
- Private equities 26.7%
Investments by region
- North America $261.8B
- Latin America $18.7B
- Europe and UK $77.2B
- Asia $119.3B
- Australia $15.1B
How does CPP work?
- All employers and their employees contribute to the Canada Pension Plan (CPP)
- CPP uses a chunk of this money to pay retirement benefits.
- Then the fund invests the remainder in various portfolios through six investment departments:
1. Credit investments
2. Total fund management
3. Capital markets and factor investing
4. Private equity
5. Active equities
6. Real assets (real estate and energy)
- Lastly, they share the returns from these investments among the contributors and their beneficiaries.
The account holds the contributions and benefits continuing at the rates used before January 2019 when the CPP, CPP Investment Board Act, and the Income Tax Act were amended.
The account holds the additional benefits and contributions that began in January 2019.
Asset Class Weights for Additional CPP and Base CPP Reference Portfolios
|Base CPP Reference Portfolio||Additional CPP Reference Portfolio|
|Global Equities (S&P Global Equities LargeMidCap Index)||85%||85%||50%||55% (transitioning from 50% during fiscal 2022)|
|Canadian Bonds (FTSE Canada All Government Bond Index)||15%||15%||50%||45% (transitioning from 50% during fiscal 2022)|
CPPIB investment news 2021
- John Graham succeeded Mark Machin as the President & CEO in February 2021.
- CPP Investment Board of Directors won the 2020 NACD NXT® award. NACD is the National Association of Corporate Directors. Source
CPPIB fiscal 2021 total fund performance
“The Fund performed exceptionally well in fiscal 2021, with all investment departments capitalizing on improving global equity markets following the steep declines observed at the end of fiscal 2020,” said John Graham, President & Chief Executive Officer, CPP Investments. “
- Net assets $497.2 billion, which is an increase of $86.7 billion at the end of fiscal 2020
- The increase results from $83.9 billion net income after CPP costs and $3.7 billion in net CPP contributions
- After deducting CPP costs, the fund has a net rate of return of 20.4% or $83.9 billion.
- Net returns per department (in billions) were: credit investments 2.5, active equities 2.5, capital markets and factor investing 4.6, real assets 6.9, private equity 34.0, and total fund management 33.5.
- The base CPP account grew, which made 98.7% of the fund assets increased by $83.9 billion to $490.9 billion. That’s a net return of 20.5%, mainly from public and private equities.
- Additional CPP grew by $4.0 billion to $6.3 billion. Its net assets are; net income of $408 million and contributions of $3.6 billion. That’s a net return of 11.6%
- This year’s returns indicate that the fund is 7 years ahead of its net projections because the management projected that it would bring in $500 billion net nominal returns in 2028. However, in fiscal 2021, the fund had $497.2 billion in net nominal returns.
CPP performance in the last five years
Base CPP approximate nominal returns since 2015
- 2015 18%
- 2016 3%
- 2017 12%
- 2018 11%
- 2019 9%
- 2020 2%
- 2021 21%
Net assets since 2016
- 2016 $278.9 Billion
- 2017 $316.7 Billion
- 2018 $356.1 Billion
- 2019 $392.0 Billion
- 2020 $409.6 Billion
- 2021 $497.2 Billion
On 31st March 2011, the fund’s annual assets were at $148.2 Billion. The net investment income was $312.9 Billion and $45.1 Billion in contributions. Hence, this year’s income shows an average of 10.8% annual rate of return over the last decade.
Additional CPP approximate nominal returns since 2019
- 2019 5%
- 2020 4%
- 2021 12%
Growth of investment programs
|Balancing programs and financing||222.3||179.7||131.7||97.5||88.9|
|Active public programs||9.9||4.8||14.5||2.6||0.2|
|Energy and resources||10.0||7.3||1.4||0.3||——–|
|Power and renewables||10.2||8.7||0.9||———||———|
|Total net investments.||497.3||409.6||279.1||148.3||98.0|
CPP long-term sustainability
The Office of the Chief Actuary of Canada usually conducts an independent review of the CPP every three years. They look into both the base CPP and additional CPP long-term sustainability over the next 75 years.
According to the 2019 report, the actuary assured Canadians that the CPP would be sustainable in the next 75 years. The base CPP is predicted to earn an annual return of 3.95%.
The Bullish takeaway
The CPP Investment 2021 report shows that the fund is committed to weather storms like Covid-19 and achieve its objectives. Most people had to work remotely in 2020; hence, such results give hope to the current and future Canadian pensioners.