By JACQUELINE NELSON
Saturday, November 11, 2017
Global currency changes dragged down investment returns during the Canada Pension Plan Investment Board's second quarter, even as international equity markets and investments made gains.
CPPIB, the largest pension fund in the country and manager of the Canada Pension Plan's portfolio, posted a return of 0.7 per cent after factoring in all costs in its second fiscal quarter of 2018, which ended Sept. 30. During that period, total assets reached $328.2-billion, up from $300-billion at the same time last year.
The result of CPPIB's decision not to pursue a currency-hedging strategy can be seen in the fund's net income of $2.3-billion in the quarter.
This summer, the Canadian dollar was on a tear against the U.S. dollar, the Japanese yen and other currencies, which became a drag on investment results. Without this impact, the fund would have posted $9-billion in net income, said Mark Machin, chief executive officer of CPPIB.
While Mr. Machin had forecast this impact earlier in the year, it didn't change the pension fund's long-held philosophy that the vagaries of currency changes will balance out over the life of the portfolio.
"It's the drag of currency that was the biggest impact - underlying investments were ... all on plan," Mr. Machin said of the quarter. "In the long term, that's all a wash and we don't really worry about it." He added that the fund is more focused on diversifying its investments across the world.
As of this recent quarter, the United States accounted for the largest portion of the overall portfolio at 35.1 per cent of assets. That was followed by Asia at 19.4 per cent, Canada at 18.1 per cent and Europe at 13.6 per cent.
"Equity markets were strong, so that helped around the world," Mr. Machin said, noting that the local markets of the United States, China, Germany and Canada had all climbed in the period.
Some economists and currency watchers are now predicting that the loonie may be set for a decline within the next year, which would again add volatility to the fund's results.
CPPIB prefers to focus on its longterm returns, rather than the quarterly snapshot. The fund reported a 10-year annualized return of 5.3 per cent after factoring in inflation, and a five-year return of 10.3 per cent.
CPPIB chief executive Mark Machin, photographed at the fund's Toronto offices in January, said the institutional investor is focused on diversifying its investments around the world.
MARK BLINCH/THE GLOBE AND MAIL