CPP fund value rises to $152.8 billion on better returns

The CPP Investment Board — which manages the fund that will be used to pay out future pension payments — says it saw $3.2 billion in investment income during the quarter, on a 2.1% rate of return.

“The CPP Fund’s return this quarter was primarily attributable to the gains realized in the public equity and bond markets, and the fund’s overall year-to-date performance also benefited from our active management programs,” said David Denison, president and CEO of the CPP Investment Board.

“This balance across our investment programs contributes to greater resilience in the Fund’s returns even in turbulent market conditions.”

However, the gain was slightly offset by $2.6 billion in CPP benefits payouts during the quarter.

The CPP fund usually receives more contributions than are required to pay benefits during the first part of the calendar year and then uses a portion of those funds to pay benefits near the end of the year.

In the nine months ended Dec. 31 the Fund has increased by $4.6 billion, with the majority, or about $3.3 billion, of that coming from investment returns and about $1.6 billion made up of contributions.

The board has been busy investing in privately held assets, focusing on real estate and infrastructure investments. Still, publicly traded stocks make up about 34.4% of its equity portfolio, while private equities are about 16.3%.

“One of the highlights of our investment activities during the quarter was the completion of the acquisition of Kinetic Concepts, Inc., a leading global medical technology company, by a consortium comprised of CPPIB, Apax Partners and PSP Investments for a total transaction value of approximately $6.2 billion,”Denison said.

“This represents the second largest global private equity transaction in calendar 2011 and marks the third consecutive year that CPPIB has participated in the largest or second largest private equity transaction globally.”

The sustainability of pension funds has been making headlines lately as the government tries to prepare for a looming pension crisis as baby boomers retire, drawing down funds in the system instead of contributing.

It has suggested it will move to ensure that demands on the Old Age Security benefit don’t bankrupt the system. Although some have suggested expanding the CPP could help cope with the pension crisis, is not expected to be altered any time soon.

The CPPIB emphasizes that Canada’s chief actuary has reviewed the fund’s health and affirmed that it remains sustainable at the current contribution rate of 9.9% for at least 75 years.

Contributions are expected to exceed benefit payouts until 2021, when the CPPIB investments will help to fund pensions.

The CPPIB is a professional investment management organization that invests surplus contributions on behalf of 17 million Canadian contributors and beneficiaries of the Canada Pension Plan.

The investment fund’s performance is key to ensuring that future generations of Canadians have access to CPP payouts, even when the number of contributors declines in relation to pensioners as baby boomers retire and the workforce ages.

The billions of dollars set aside for future use also give the fund’s managers assurance that they will not have to boost contributions or cut payouts.