TORONTO — A stock market crash in March due to the COVID-19 pandemic took a bite out of Canada Pension Plan Investment Board's returns for 2020 but other types of assets performed well during the same downturn, CPPIB chief executive Mark Machin said Tuesday.
CPPIB's full year return on assets for fiscal 2020 was 3.1 per cent, down from 8.9 per cent for the 12 months ended March 31, 2019.
But Machin noted CPPIB has a 75-year investment horizon and its 2020 real rate of return for the past 10 years was 8.1 per cent, adjusting for inflation.
"Canadians have so many things to worry about right now, given the huge surge in employment and economic instability and the uncertainty of the pandemic," Machin said.
"This really should be one thing they don't worry about."
CPPIB wasn't immune to the historic stock market downturn and volatility that occurred in March, but Machin said it was partly protected by a diversified investment portfolio.
"We're not just in equities. We also have big bond holdings and bonds rallied during that period.... And that offset the decline in equities," Machin said.
There were also economies that began to recover from the COVID pandemic faster than others, and CPPIB was helped by having a geographically diverse portfolio.
"If we were 100 per cent in Canada, we'd be in a bit of a pickle right now."
Machin said that Canadian equities were down 16 per cent in March and down nearly 20 per cent for the fiscal fourth quarter.
By contrast, China was down just 0.7 per cent in March and down 1.5 per cent for the quarter.
As for operating CPPIB through the COVID-19 shutdowns, Machin said the fund manager was able to function well and won't rush its return to reopen offices.
"The first one to reopen has been Hong Kong. . . . They've had weeks without community spread."
At CPPIB's head office in downtown Toronto "we're not going to be the first back. We don't need to be. Things have been working completely smoothly from remote."
Machin said real estate will be an interesting asset going forward, with the pandemic increasing the value of data centres and warehouses while eroding the value of hotels and shopping malls.
"Office is somewhere in the middle," Machin said. "It's unclear where office goes."
On the one hand, there may be a need for more office space to permit social distancing as a COVID precaution for employees. On the other hand, more employers may make more use of a remote workforce outside of office towers.
"It's going to be a challenge for some time."
Real estate accounted for 11.3 per cent of CPPIB's assets as of March 31.
As for the energy sector, which accounts for 2.8 per cent of CPPIB's portfolio, oil prices are slowly recovering after a huge decline, but CPPIB is also into alternative energy assets.
"So we have substantial investments in renewable energy and energy innovation as well."
"Those types, I think, will be interesting."
The independent fund manager for the national pension system said its net assets totalled $409.6 billion at March 31, up from $392.0 billion at the end of fiscal 2019.
Its base account had $407.3 billion in net assets as of March 31, up from $391.6 billion a year earlier.
CPPIB invests excess contributions to the Canada Pension Plan from employers and employees in most parts of Canada except for Quebec, which has its own provincial plan.
This report by The Canadian Press was first published May 26, 2020.
David Paddon, The Canadian Press