The Canadian Pension Plan Investment Board’s assets under management ballooned during fiscal year 2020, despite the fourth-quarter market downturn.
But along with the AUM increase came a 14 percent increase in investment management fees, the CPPIB’s annual report, released Tuesday, shows.
The CPPIB reported a C$17.6 billion (US$12.77 billion) increase in net assets, to C$409.6 billion, for its fiscal year ending March 31. In other words, CPPIB’s assets under management increased by 4.5 percent year-over-year.
The investment board paid a total of C$1.8 billion in investment management fees for the year, an increase of $222 million year-over-year. This is after its 2019 spend on fees had declined by C$152 million from 2018, Institutional Investor previously reported.
According to the CPPIB, this was driven by an increase in assets under outside funds’ management and higher performance fees paid to external public market managers.
“Performance fees are calculated on a calendar year basis and represent very strong manager performance for the calendar year 2019, which were higher than our absolute returns in 2018,” the annual report said.
The CPPIB paid the most fees to its capital markets and factor investing managers: C$1.01 billion, which included $584 million for performance fees and $426 million for management fees paid to external managers, the report said.
Despite its higher fees, the program lost $3.2 billion during fiscal year 2020, with losses driven by its quantitative and risk premia investments. The program manages $56 billion, less than the amount managed in the CPPIB’s active equities, private equity, and real assets investment programs — each of which reported lower fees.
“The highly volatile environment was particularly challenging, with losses experienced across most programs,” the annual report said of the capital markets and factor investing program.
According to the annual report, quantitative strategies contributed a net loss of C$1 billion, as during the first three quarters of the fiscal year value-oriented factors underperformed in U.S. and European portfolios. The report said that during the fourth quarter, when market volatility spiked, the strategy’s performance was flat.
Meanwhile CPPIB’s risk premia strategy also lost C$1 billion, which the investment board attributed to the market’s fourth-quarter performance. The volatility strategy within the risk premia portfolio lost $700 million, “mostly in equity and commodity volatility that reflected the chaotic market environment and the drop in crude oil prices,” the report said.
The CPPIB said in its annual report that it works with external managers to decrease fees by trading lower management fees for higher performance fees and considering longer investment commitment periods for lower fees, among other strategies like performance hurdles and co-investments.
And over the long term, these strategies paid off: over the past five years, the capital markets, factor investing, private equity, and secondaries programs — which paid a total of C$6.9 billion in both management fees and performance rewards — generated C$22.8 billion of net investment income.
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Despite the increase in assets under management, CPPIB’s 2020 returns declined in comparison to 2019. The investment board reported a ten-year net nominal return of 9.9 percent in 2020, as compared with 11.1 percent in 2019. Similarly, the investment board’s five-year return for 2020 was 7.7 percent, as compared to its 2019 five-year return of 10.7 percent.
For the one-year period ending March 31, 2020, the CPPIB returned 3.1 percent net of all costs, the annual report said.
