PSP Investments Posts 8.5% 10-year Annualized Rate of Return for Fiscal Year 2020
PR84723
MONTREAL, July 10, 2020 /PRNewswire=KYODO JBN/ --
Focus on long-term horizon and diversification safeguards pensions of
contributors and beneficiaries who dedicate their professional lives to public
service.
Highlights:
-- Ten-year net annualized return of 8.5%--above the return objective of
5.7%--generated $32.9 billion of cumulative excess net investment gains.
-- Over the last 10 years, PSP Investments' performance exceeded the
performance of the Reference Portfolio by 1.3% per year without
incurring more pension funding risk.
-- Five-year net annualized return of 5.8% exceeded the policy portfolio
benchmark of 5.1%.
The Public Sector Pension Investment Board (PSP Investments) ended its fiscal
year March 31, 2020, with a five-year net annualized return of 5.8% and a
10-year net annualized return of 8.5% on its investments. During the same
period, PSP Investments generated $32.9 billion of cumulative net investment
gains above the return objective over the past 10 years.
Logo -
The one-year total portfolio net return was -0.6%, reflecting severe market
declines due to the global COVID-19 pandemic in the weeks preceding the March
31, 2020 year-end. Nonetheless, this result exceeded the reference
portfolio's(1) one-year return of -2.2%.
The pension investment manager reported $169.8 billion in net assets under
management, compared to $168.0 billion the previous fiscal year, an increase of
1.1%.
"I want to thank the PSP Investments team for their work safeguarding the
investments made on behalf of the public sector pension plans, many of whose
members are among the frontline heroes actively supporting Canadians during the
COVID-19 pandemic," said Neil Cunningham, President and Chief Executive Officer
at PSP Investments.
"Despite the decline in equity markets before the year-end, we were able to
exceed the reference portfolio for the fiscal year and maintain a long-term
return of 8.5%, which outperformed both the 10-year reference portfolio return
of 7.2% and the 5.7% long-term return objective," Mr. Cunningham added. "Strong
returns over the past years have helped bring the pension plans into a
favourable funding position."
"Our focus on the long-term horizon has served us well during the global
pandemic and has become more important than ever," said Eduard van Gelderen,
Senior Vice President and Chief Investment Officer at PSP Investments. "Before
the pandemic, we were preparing for an eventual market downturn after many
years of sustained growth in order to be able to respond quickly if a crisis
occurred. Our strategies have proven their effectiveness in maintaining our
portfolio's stability and liquidity during tumultuous times."
__________________________________
(1) PSP's Reference Portfolio is a simple portfolio composed of publicly traded
securities that could be passively managed at minimal cost. The Reference
Portfolio is designed in such a way that, based on our long-term capital market
assumptions, it is expected to deliver the Return Objective over the long-term
with minimum investment risk.
ASSET CLASS NET ASSETS ONE-YEAR FIVE-YEAR % OF TOTAL
UNDER MANAGEMENT* RETURN RETURN NET ASSETS
(billion $)
PMARS** $81.1B (3.0)% 4.3% 47.8%
Private Equity $24.0B 5.2% 7.2% 14.2%
Credit Investments $13.3B 4.3% 11.8%*** 7.8%
Real Estate $23.8B (4.4)% 8.3% 14.0%
Infrastructure $18.3B 8.7% 12.1% 10.8%
Natural Resources $7.6B (5.2)% 6.6% 4.5%
*This table excludes Cash and Cash equivalents and the Complementary Portfolio.
**Public Markets and Absolute Return Strategies.
***Annualized return since inception (4.3 years).
As at March 31, 2020:
PMARS, which is composed of Public Market Equities (excluding cash and cash
equivalents) and Fixed Income, ended the fiscal year with $81.1 billion of net
assets under management, an increase of $0.3 billion from fiscal year 2019.
Overall, the group incurred a performance loss of $2.4 billion, for a one-year
return of -3.0%. PMARS generated a five-year annualized return of 4.3%. Public
Market Equities faced a volatile and challenging environment through the weeks
ending the fiscal year: in fewer than five weeks, many of the indices lost
approximately 30% of their value, experiencing one of the fastest and most
significant stock market declines ever recorded. Fixed Income's assets under
management ended the year at $32.7 billion, up from $29.8 billion in 2019.
Private Equity ended the fiscal year with net assets under management of $24.0
billion, $0.5 billion more than in fiscal year 2019, and achieved a one-year
return of 5.2%. Performance income reached $1.1 billion despite significant
unrealized valuation losses across the portfolio due to the COVID-19 pandemic.
Fiscal year 2020 was marked by continued strong deployment across the U.S. and
Europe, largely offset with another record year of dispositions resulting from
active monetization of significant direct investments. New co-investments
totaling $3.4 billion were made primarily in the health care, financials and
technology sectors including, among others, the acquisition of significant
interests in Convex, a de novo specialty property and casualty insurance
company; Galderma, a leading global provider of skin health products,
headquartered in Switzerland; Lytx, a US-based leading provider of video
telematics solutions for commercial and public-sector fleets; and Ceva Sante
Animale, a French global veterinary health company well positioned to tackle
issues related to feeding a growing population.
Credit Investments ended the fiscal year with net assets under management of
$13.3 billion, an increase of $2.8 billion from the prior fiscal year, and
generated performance income of $488 million, resulting in a 4.3% one-year
return that exceeded the benchmark return of -3.7%. The group made $7.2 billion
in acquisitions, which were partially offset by $3.9 billion in dispositions
driven by the higher churn of its maturing portfolio and opportunistic selling
prior to the COVID-19 pandemic and net valuation losses of $1.4 billion. The
portfolio is well diversified across asset types, geographies, industries and
equity sponsors. Benefitting from strong credit selection, the group has been
able to deliver interest income that exceeds that of the benchmark since
inception.
Real Estate ended the fiscal year with $23.8 billion in net assets under
management, up by $0.3 billion from the previous fiscal year, and incurred a
performance loss of $1.0 billion, resulting in a -4.4% one-year return. The
8.3% five-year annualized return exceeded the 6.1% benchmark return.
Performance for the current year was affected by COVID-19, which generally had
a negative effect on the overall portfolio. The pandemic significantly impacted
the value of the global retail portfolio and more specifically the malls in the
U.S. The Alberta office portfolio was particularly impacted by the pandemic and
the drop in oil prices that exacerbated the negative sentiment on the Alberta
economy. The impact on our global industrial assets was more subdued as the
sector produced a positive return. Real Estate maintained its focus on building
a world-class portfolio of assets in major international cities and deploying
into high-conviction sectors. Acquisitions included a large multi-family
portfolio in seven U.S. cities in partnership with Berkshire Group, a large
industrial portfolio in Mexico with Advance Real Estate and a multi-family
portfolio with Starlight Investments in Canada. The group also made strategic
disposals of core assets that had attained their objectives in the office
sector.
Infrastructure ended the fiscal year with $18.3 billion in net assets under
management, a $1.5 billion increase from the prior fiscal year, and generated
$1.4 billion of performance income, leading to an 8.7% one-year return
exceeding the benchmark of -3.2%. Infrastructure deployment was mostly across
North America and Australia and included new direct and co-investments
totalling $2.3 billion. Key investments included the take-private of AltaGas
Canada, a large Canadian company with natural gas distribution utilities and
renewable power generation assets. The group also acquired an interest in
AirTrunk, the largest independent operator of hyperscale datacentres in the
Asia Pacific region.
Natural Resources ended the fiscal year with net assets under management of
$7.6 billion, an increase of $0.8 billion from the previous fiscal year, and
incurred a performance loss of $0.4 billion, for a one-year return of -5.2%,
exceeding the -5.8% benchmark return. The five-year return for the group was
6.6%, exceeding its benchmark of 1.9%. Since-inception return also remains
positive and the group has consistently exceeded its annual benchmark.
Performance for the current year was dampened by COVID-19, which significantly
impacted the carrying value of the group's non-core oil and gas assets. The
crisis did not have a significant impact on our core agriculture and timberland
investments. The year was marked by continued strong deployment of $3.2
billion, mainly in agriculture in both Australia and North America. Notable
agriculture investments included the board-supported take-private of one of
Australia's leading agribusinesses, and a buy-and-lease transaction on ~ 11,500
hectares of mature almond orchards and associated water entitlements located in
Victoria, Australia. On the timber front, the group increased its exposure to
Canadian timberlands in a high-quality asset with a trusted and proven
management team.
Total Costs
Over the past five years, PSP Investments has been building the organization
and ramping up capabilities to achieve our Vision 2021 Strategic Plan. The
business units, strategies and portfolio have undergone significant
transformations. We have also continued to pursue internal active management
where we have increased the allocation of the portfolio toward more private
market asset classes. Finally, we have opened international offices to build
local presence in London, New York and Hong Kong. All such efforts have
already started to yield benefits indicating that associated costs will pay
off.
Expressed in bps of AUM, our total cost ratio is slightly above that of fiscal
year 2019. Similarly, the operating costs ratio, a component of our total
costs, remained almost at the same level as that of fiscal 2019. Worth noting
is that, absent the COVID-19 pandemic's impact on AUM, both, the total cost
ratio as well as the operating costs ratio would have been more favourable. In
fact, the operating costs ratio would have been lower in fiscal year 2020 than
in fiscal year 2019.
Corporate Highlights
-- Our risk management and monitoring system prompted PSP Investments to
assemble a COVID-19 Task Force in mid-January. This contributed to PSP
Investments being one of the early movers in response measures and
created a seamless shift to working from home starting March 2020. Some
of the actions taken to support management's cost-saving measures
included suspending an increase in Directors' compensation and
temporarily freezing external hiring and annual salary increases.
Moreover, PSP Investments established a special COVID-19 Emergency
Relief Initiative, which raised over $700,000 for charity, of which the
executive team and the Board Directors contributed $300,000. The funds
will help the Red Cross, United Way, Community Foundations of Canada and
HealthPartners. In addition, PSP Investments' CEO, Neil Cunningham,
donated 50% of his FY20 salary to COVID-19-related charities.
-- In fiscal year 2020, we advanced our total fund investment approach as
part of our One PSP vision and five-year Vision 2021 strategic plan. Our
Chief Investment Office launched several initiatives to enhance our
ability to apply a total fund perspective when crafting investment
strategies, making business decisions and managing risk, leverage and
liquidity. Our Total Fund approach continued to evolve as we shifted to
anchoring our performance and programs to our Reference Portfolio, which
will be operationalized in fiscal year 2021.
-- We continued to deliver on our optimization program and seamlessly
transitioned to a new custodian bank to support our global expansion
in a cost-efficient manner. We also advanced our digital strategy to be
more effective and scaled and secured technology to gain better
portfolio insights and enable robust analytics and
data-driven investing.
We further ingrained innovation within the organization, with new
investment strategies being incubated in all asset classes that leverage
long-term market trends and disruptive technologies.
-- We ramped up operations in our Asian hub, with our team there
successfully deploying our Asian strategy and establishing solid
relationships with local partners. We expanded our presence locally with
additions to our local Private Equity and Infrastructure teams.
-- We continued to develop our talent and enhance the employee experience.
As part of our suite of development programs called The PSP Way, we
created a new curriculum for first-time managers and launched the
Leadership Journey program for senior leaders. We continued to
prioritize inclusion and diversity through our eight affinity groups
whose initiatives included a one-week forum offering 18 sessions with
over 600 employees participating. Our employee engagement consistently
scored well above industry norms.
-- We continued to embed environmental, social and governance
considerations into every aspect of the investment process, across all
asset classes. Accomplishments included significant progress on
assessing the investment portfolio's exposure to climate change risks
and opportunities to ensure the resilience of PSP Investments
long-term asset allocation. Our fourth annual Responsible
Investment Report can be consulted here
(
).
"In these difficult times, we want to reassure contributors and beneficiaries
about our solid long-term financial performance that sustains the pensions of
those who have served our country," said Neil Cunningham, President and Chief
Executive Officer at PSP Investments. "We built our investment portfolio and
organization to be resilient and diversified. This approach has made a
difference during the health crisis the world is currently experiencing."
"Looking to the future, fiscal year 2021 marks the last year of our Vision 2021
strategic plan," added Mr. Cunningham. "We will now work to consolidate the
foundation we've built to support our future growth, resilience and stability
in an increasingly changing investment environment. As we start to develop the
next iteration of PSP Investments' strategy, I would like to express my thanks
to our team around the world for rising to each new challenge and continuing to
spot opportunities that emerge."
For more information on PSP Investments' fiscal year 2020 performance, visit
www.investpsp.com or download the annual report here (
).
About PSP Investments
The Public Sector Pension Investment Board (PSP Investments) is one of Canada's
largest pension investment managers with $169.8 billion of net assets under
management as of March 31, 2020. It manages a diversified global portfolio
composed of investments in public financial markets, private equity, real
estate, infrastructure, natural resources and credit investments. Established
in 1999, PSP Investments manages net contributions to the pension funds of the
federal Public Service, the Canadian Forces, the Royal Canadian Mounted Police
and the Reserve Force. Headquartered in Ottawa, PSP Investments has its
principal business office in Montreal and offices in New York, London and Hong
Kong. For more information, visit www.investpsp.com or follow us on Twitter and
LinkedIn.
Media Contacts, Maria Constantinescu, PSP Investments, Canada: +1 514-218-3795,
Toll free: +1-844-525-3795, Email: media@investpsp.ca
SOURCE PSP Investments
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