CANADA - The Canadian Pension Plan fund declined by C$13.8bn (€15.42bn) in the nine months to 31 December 2008, its investment board has revealed in its latest financial results.
Operating expenses and a 13.7% ($17.4bn) drop in investment return caused the pension fund to drop to C$108.9bn. That said, the total value of inflation-sensitive assets, which include real estate, was C$15.9bn at the end of the year, which is up slightly on the $14.4bn return seen in 2007.
David Denison, president and chief executive officer at CPP Investment Board, said: "Sharp declines in global equity markets, especially in October and November, negatively impacted our results for the quarter."
The CPP Fund returned -6.7% and declined by C$8.5bn in the fourth quarter alone, caused mainly by a sharp decline in private equity market returns. Private equity represents 15.3% of the fund's portfolio and is valued at C$16.7bn.
According to Denison however, the pension fund's long-term investment strategy, diversified portfolio and steady cash flows will generate good results in the future.
"The funding structure of the CPP means that it is able to weather an extended market downturn and the assets we are managing today are not required to help pay pensions for another 11 years," he said.
Despite last year's poor results, over a four-year period the CCP Fund has increased in value by C$31.7bn. Over the same time period, it produced an annualised investment rate of return of 3.5% and produced C$10.2bn of investment income.
The Canadian pension fund is now concentrating on taking advantage of investment opportunities resulting from the volatile markets.
"Since we are not forced to sell assets in these market conditions to pay current benefits, we instead are well-positioned to acquire assets at attractive prices. As we assess potential new investments in this market, we are continuing to make decisions based upon our disciplined risk/return analytical framework," said Denison.
Commenting on whether the CPP fund will make an changes to its investment strategy, Denison said: "While we have adjusted our short-term tactics in light of cyclical changes in the markets, we believe our investment strategy and our weighting to key asset classes continue to be appropriate for a fund with as long a time horizon as the CPP fund."
Real estate currently makes up 7.1% of the CPP fund's portfolio and is valued at C$7.7bn. The fund's real estate portfolio is made up mostly of office and retail commercial properties located in Canada's main city centres and the United Kingdom. It also has properties in the United States, Europe and Asia.
Equities make up the largest part of the pension fund's portfolio and are worth C$62.7bn or 57.5%, while fixed income represents 27.8% and is worth C$30.3bn. Inflation-linked bonds and infrastructure make up 4.2% and 3.4% respectively.
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