The CPP Fund ended its fiscal third quarter with assets of $108.9 billion, compared to $117.4 billion at the end of the second quarter, the CPP Investment Board said Friday.

The fund’s investment return of negative 6.7%, or negative $7.9 billion, for the third quarter ended Dec. 31, 2008, accounted for most of the fund’s $8.5 billion decline over the period.

The primary factor affecting performance in the quarter was the sharp decline in public equity markets, the CPPIB said. The rest of the loss was the result of the return of a portion of contributions received earlier in the calendar year, that went to benefit payments.

In Canada the S&P/TSX dropped 23.5% during the funds’s fiscal third quarter, while globally the S&P 500 declined 22.5%, the FTSE was down 9.6% and the DAX and Nikkei dropped 17.5% and 21.3% respectively.

Equities represented 57.5% of the investment portfolio, or $62.7 billion, at the end of the third quarter. This consisted of 42.2% public equities valued at $46. billion, and 15.3% private equities valued at $16.7 billion. Fixed income, including bonds, money market securities, and other debt represented 27.8% of the portfolio or $30.3 billion. Inflation-sensitive assets represented 14.7% or $15.9 billion. Of those assets, 7.1% consisted of real estate valued at $7.7 billion, 4.2% was inflation-linked bonds valued at $4.6 billion, and 3.4% was infrastructure valued at $3.6 billion.

On a geographic basis, 48.7% of the fund or $53.1 billion was invested in Canada, while 51.3% or $55.8 billion was invested globally.

For the nine-month period ended Dec. 31, 2008, the fund declined by $13.8 billion after operating expenses. The decline consisted primarily of an investment return of negative 13.7%, or negative $17.4 billion, offset by CPP contributions of $3.7 billion, the CPPIB said

For the four-year period ended Dec. 31, 2008, the fund has generated an annualized investment rate of return of 3.5%, which has resulted in $10.2 billion of investment income for the fund over the four years. For the same period the total value of the fund (including CPP contributions) has increased by $31.7 billion.

Since inception the fund has delivered $30.1 billion in investment income net of operating expenses, for a 5.1% annualized investment rate of return since April 1, 1999.

“Sharp declines in global equity markets, especially in October and November, negatively impacted our results for the quarter,” said David Denison, president and CEO, CPPIB, in a release.

“While current market conditions are creating near-term portfolio declines, they are also providing us with long-term investment opportunities,” added Denison. “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.”

IE