Canada's $2.5bn (US$1.62bn) Public Sector Pension Investment Board (PSP Investments) lost C$227m (US$147m) last year, returning -4.1% in its first year of existence.
Despite the C$227m loss, PSP Investments remains confident in equities, claiming that declining stock markets have created opportunities to build equity positions which should show good value appreciation in the years ahead.
PSP Investments president and chief executive officer, Adel Sarwat, explained: A well diversified and globally based equity portfolio should outperform fixed-income investments in the long term. We believe that investing a high proportion of assets in equities will produce superior returns.
PSP Investments, which has been operational since April 2000, manages the pension funds of Canada’s federal Public Service, the Canadian Forces and Royal Canadian Mounted Police (RCMP). Under current regulations, any assets allocated by PSP Investments to Canadian equities must be invested passively until April 2003.
Between April 2000 and March 31, 2001, PSP Investments’ equities holdings lost $270m (US$175m), whilst $43m (US$27.9m) was gained on fixed-income securities. Currently, equities make up 61% of PSP Investments' total assets.
Canadian equities, worth 34% of PSP Investments’ total assets, are invested in a TSE 300 Index fund. Foreign equities, at 27% of its total holdings are invested in two index funds, one for the United States and the other for the rest of the world. PSP Investments’ remaining 39% of total assets are invested in an index fund of Canadian government and corporate bonds and cash.
Since it opened for business, PSP Investments has received C$2.5bn in cash flows from the Public Service pension plan, the Canadian military fund and the RCMP pension fund. PSP Investments expects to receive approximately $2.5bn in annual cash flow for the foreseeable from the three funds. Currently, it invests C$532m (US$345.2m) on behalf of the Military fund, C$1.8bn (US$1.16bn) for the Public Sector plan, and C$188.8m (US$122.4m) for the RCMP’s pension fund.
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