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%.
MONTRÉAL, July 9, 2020
/PRNewswire/ - 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.
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's1 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 UNDER
MANAGEMENT*
(billion
$)
|
ONE-YEAR
RETURN
|
FIVE-YEAR
RETURN
|
% OF TOTAL NET
ASSETS
|
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 Santé 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 Montréal and
offices in New York, London and Hong
Kong. For more information, visit www.investpsp.com or
follow us on Twitter and LinkedIn.
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