Canada Pension Plan Under Financial Pressure

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TORONTO — Britain's vote to leave the European Union was a major drag on Canada's largest pension fund, but a recovery in stock markets has softened the blow, the new CEO of the Canada Pension Plan Investment Board said Thursday.

Mark Machin, who became the CPPIB's president and CEO just 10 days before the June 23 referendum, said the Toronto-based fund manager was faced with incredible market volatility after the "leave'' side scored its unexpected victory.

"It was a very sharp lurch down in equity markets — anywhere from five to 20 per cent in major markets,'' Machin said in an interview. "There was (also) a very big move in the U.K. pound. That was the second major impact.

"The pound's still down, whereas equity markets have bounced back.''

brexit
People hold banners during a "March for Europe" demonstration against Britain's decision to leave the European Union, in central London, Britain July 2, 2016. The volatility caused by Brexit has damaged the Canada Pension Plan's investment returns. (Photo: Reuters/Neil Hall)

Machin spoke following the CPPIB's release of its financial performance for the three months ended June 30.

Its net return on investments was 1.45 per cent, well below its long-term performance over the past decade, but better than during the first quarter of 2015-16 when its net return was negative 0.2 per cent.

The fund's 10-year rate of return in this year's first quarter was 5.5 per cent after accounting for inflation, down from 5.8 per cent in last year's comparable quarter.

The 10-year real rate of return remains above the Chief Actuary of Canada's benchmark of 4.0 per cent annualized real rate of return.

The Canada Pension Plan — which provides funds for the CPPIB to manage for future use — is potentially facing major changes supported by the federal government and most provinces.

They are pushing for an expansion of Canada Pension Plan benefits. However, some groups are opposed because of the higher cost to employers and their employees.

At the end of June, the CPP had $287.3 billion of net assets, up $8.4 billion from the end of March.

Infrastructure made up just 7.2 per cent of assets under management — $20.8 billion. The federal government has said it would like more pension money invested in Canadian infrastructure.

As with his predecessor, Machin said CPPIB's under no obligation to invest in Canada and its mandate is to produce the best possible rate of return without undue risk of losses.

"We're obviously watching the opportunities that will be thrown up here in Canada, as we do around the world,'' he said. "We'll assess them all as they appear.''

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