May 17 (Bloomberg) -- Canada Pension Plan Investment Board, the country’s second-biggest public pension manager, posted a return of 6.6 percent in the latest fiscal year, led by real estate, bonds and infrastructure investments.
Investment income for the year ended March 31 was C$9.9 billion ($9.8 billion), the Toronto-based fund manager said today in a statement. Assets rose to a record C$161.6 billion from C$148.2 billion a year earlier.
“This was a 12-month period that had some particular challenges in the global equity markets,” Chief Executive Officer David Denison told reporters today in a briefing in Toronto. “But it was a very strong year of growth.”
Canada Pension’s results beat the 3.2 percent median return of the country’s pension funds over the 12 months, according to RBC Dexia Investor Services. The manager posted gains in U.S. and other developed-market equities as well as in bonds. It also realized gains from private assets such as real estate and infrastructure holdings. Returns were held down by losses in Canadian stocks and emerging-market equities.
Canada Pension had a five-year annualized return of 2.2 percent as of the end of March, and a 10-year annualized return of 6.2 percent. In fiscal 2011, Canada Pension returned 12 percent. The fund includes investment earnings and contributions not needed to pay current pensions. Contributions last year amounted to C$3.9 billion.
Real Estate Returns
Real estate and infrastructure, which represent more than 16 percent of the fund’s investments, both returned about 13 percent in fiscal 2012, outperforming returns from equities, which account for half the fund’s portfolio.
The pension plan’s bond portfolio, which includes money-market securities, also lifted investment income, returning 9.5 percent last year, up from 5.3 percent in 2011. Canada Pension said non-marketable bonds returned 14 percent last year, more than triple that of 2011, and inflation-linked bonds returned about 16 percent, up from 10 percent.
Denison said he doesn’t expect to repeat last year’s bond performance in the near future. Canada Pension sold its European sovereign bonds to buy assets including real estate and infrastructure, which it expects will fare better over the medium and long-term.
“There’s more downside risk to bonds over the next three to five years than there is upside,” Denison said in a telephone interview. “There’s not much room for yields to go down, and that’s the practical reality of where they are today.”
The fund lost 11 percent on Canadian stocks, compared with a 20 percent return the prior year, as Canada’s benchmark Standard & Poor’s/TSX Composite Index fell 9.8 percent in the year ended March 31, including dividends. Canadian private equities returned 8.1 percent last year, about half the return of 2011.
Public foreign developed market equities had a 3.6 percent return, down from 9.1 percent the year earlier, while private foreign developed market equities returned 12 percent, down from 19 percent, Canada Pension said. The MSCI World Index gained 1.2 percent in the period.
Public emerging market equities lost 7.9 percent, compared with an 11 percent return in 2011, the fund said. Private emerging market equities rose 6.6 percent, compared with 17 percent the prior year.
Canada Pension also expects to do more deals around the world, after investing in shopping malls, office properties, and a gas pipeline in Norway in the past year.
“We expect to be very active and that would be literally across private equity, private debt, infrastructure and real estate,” Denison said. “But if market conditions change, we’ll pull back. We can decide to sit on the sidelines.”
Denison, who has been CEO of the fund since January 2005, retires next month. He’ll be succeeded by Mark Wiseman, currently executive vice president of investments for the pension.
Canada Pension covers every Canadian province except Quebec. Caisse de Depot et Placement du Quebec, Canada’s largest pension fund, said Feb. 23 it posted a 4 percent return on investments for the year ended Dec. 31. Ontario Teachers’ Pension Plan, the third-biggest retirement-fund manager, also advanced 11 percent last year.
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