The Canada Pension Plan Fund generated an investment return of 12.9% in 2006, the CPP investment board announced today.

The rate of return was lower than the 15.5% racked up in the previous year, but well ahead of the 8.5% recorded in 2005.

“The CPP fund’s annualized investment rate of return of 13.6% over the past four years indicates that we are on track to meet our multi-generational goal of helping to sustain the pensions of the 16 million participants in the CPP,” said David Denison, CEO of the CPP Investment Board, in a release.

Denison said the fund outperformed its benchmark by about 2.5% this year.

He attributed the solid gain to “strong equity market performance in the first nine months of the fiscal year, followed by a degree of volatility in the first three months of 2007.”

Equity markets turned down sharply in February, Denison said.

“Our decision to diversify our investments into a wider range of asset classes, including infrastructure and real estate, significantly contributed to our value-added results this year.”

For the year ending March 31, the fund grew $18.6 billion, of which $13.1 billion came from investment earnings.

Taxpayer CPP contributions fattened the coffers by another $5.5 billion.

As of March 31, equities represented 64.8% of the fund, or $75.6 billion, and bonds 25% or $29.2 billion.