Double Blind

The CPP investment board lost 6.7% of its assets due to its investment decisions in the last quarter of 2008. Considering the mix of assets it had during this time (42% public equities, 15% private equities, 28% fixed income, 7% real estate), this is a miracle. The TSX was down 23.5% in the equivalent period.

The CPP board has delivered a 5.1% rate of annualized returns (after expenses) since April 1, 1999. Considering the TSX was up 2.7% on an annualized basis fro that date to the end of 2008, this is not a bad performance by the CPP investment fund.

If the CPP had a simpler investment strategy – for example, if they had chosen to invest in government of Canada 10-year bonds during the 10 year period, their average yield would be close to around 4.77%. While a 0.33% annualized performance increase over 10 years is a significant amount of money, one wonders if it is worth the management expense to diversify into public equities.

Still, one advantage of the existing strategy is the ability for the CPP fund to invest in global equities, and not constrain their capital to strictly domestic markets; if they kept to domestic markets it would result in excessive correlation to the Canadian economy, which would impair diversification efforts significantly.

This entry was posted on Friday, February 13th, 2009 and is filed under Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.