MONTRÉAL- The Public Sector Pension Investment Board (PSP Investments) announced today that it ended its fiscal year March 31, 2018 with net assets of $153.0 billion, compared to $135.6 billion the previous fiscal year, an increase of 12.9%.
The investment manager reported a one-year total portfolio net return of 9.8% on its investments and generated $13.5 billion of net income, net of all PSP costs. This return is significantly greater than the Policy Portfolio benchmark return of 8.7%.
“This is a year we can be proud of,” said Neil Cunningham, President and Chief Executive Officer at PSP Investments. “We sustained performance over a year marked by market volatility, which shows clearly that our strategic focus on increased diversification is generating returns. Once again, our people highlighted the possible in their active commitment to our shared purpose: to contribute to the financial security of the contributors and beneficiaries who have served Canada throughout their careers.”
Net assets increased by $17.4 billion in fiscal year 2018, attributable to net income of $13.5 billion and net contributions of $3.9 billion. All asset classes saw strong returns.
Public Markets had net assets under management of $76.7 billion, a decrease of $0.5 billion from fiscal year 2017, and generated investment income of $6.3 billion, for a one-year return of 8.3%, compared to a benchmark of 7.7%. Public Markets continued to generate significant returns in fiscal year 2018, despite increased geopolitical risk, market volatility and rising interest rates, mainly during the fourth quarter. At fiscal 2018 year-end, net assets managed in active strategies totalled $45.8 billion, up from $38.8 billion the previous year, while net assets managed in internal active strategies totalled $31 billion, up from $24.6 billion.
Real Estate had $23.2 billion in net assets under management, up by $2.6 billion from the previous fiscal year, and generated $2.8 billion in investment income, resulting in a 13.6% one-year return versus 12.3% for the benchmark. Fiscal year 2018 was a year of stabilization and consolidation, reflecting the maturity of the Real Estate portfolio. The group achieved strong performance despite an ongoing low-yield environment. During fiscal year 2018, Pierre Gibeault was appointed Managing Director and Head of Real Estate Investments.
Private Equity had net assets under management of $19.4 billion, $3.5 billion more than in fiscal year 2017, and generated investment income of $2.1 billion, for a one-year return of 12.9%—versus a 3.4% loss in fiscal year 2017—compared to a benchmark return of 17.6%. The strong increase in fiscal year 2018 performance was mainly driven by strong valuation gains, notably in the financial and industrial sectors, but was partially offset by underperformance of certain investments. However, investments completed in the last three years, representing $9.9 billion of assets, have generated returns significantly above benchmark. Private Equity deployed a total of $4.4 billion (including $2.3 billion in new direct investments and co-investments) and committed a total of $4.1 billion for future deployment through 17 funds, 11 of which are with new fund partners. During fiscal year 2018, Mr. Simon Marc was appointed Managing Director and Head of Private Equity.
Infrastructure had $15.0 billion in net assets under management, a $3.9 billion increase from the prior fiscal year, and generated $2.3 billion of investment income, leading to a 19.3% one-year return, relative to the benchmark return of 12.1%. The group deployed $3.3 billion in fiscal year 2018, including $2.2 billion in direct investments. During fiscal year 2018, Mr. Patrick Samson was appointed Managing Director and Head of Infrastructure Investments.
Private Debt had net assets under management of $8.9 billion, an increase of $4.5 billion from the prior fiscal year, and generated net investment income of $569 million, resulting in an 8.2% one-year return, compared to a benchmark of 2.3%. The group deployed net $4.3 billion across over 30 transactions, including investments in revolving credit facilities, first and second lien term loans, and secured and unsecured bonds. The group’s London team made great strides toward its long-term portfolio allocation target, with European assets under management accounting for 24% of the global Private Debt portfolio, up from 8% the prior year.
Natural Resources had net assets under management of $4.8 billion, an increase of $1.1 billion from the previous fiscal year, and generated record investment income of $450 million, for a one-year return of 11.2%, versus the 3.1% benchmark. The increase in net assets under management resulted primarily from $864 million in net deployments and $332 million in valuation gains. Income was driven by strong cash flows and valuation gains. The group made significant progress again this year in diversifying its investments into the agriculture sector, which now account for $2 billion of assets under management. During fiscal year 2018, Mr. Marc Drouin was appointed Managing Director and Head of Natural Resources.
Our Board of Directors appointed Neil Cunningham as President and CEO on February 7, 2018. Prior to this appointment, Mr. Cunningham served as PSP’s Senior Vice President, Global Head of Real Estate and Natural Resources at the organization.
We launched our Inclusion & Diversity (I&D) Forum and initiated an I&D Council co-chaired by Mr. Cunningham, for whom an active commitment to inclusion and diversity is a top priority.
We also received an important accolade by being recognized as one of Montréal’s Top Employers.
This year’s annual report marks the launch of PSP’s new brand, Spot the Edge, which embodies our passion for exploring every angle, across asset classes, markets and industries, to broaden our perspectives and hone in on opportunities.
We continued to integrate environmental, social and governance factors into our investment decision-making process across asset classes. Significant progress was made on all pillars of our responsible investment strategy. Our second annual Responsible Investment Report can be consulted here.
“Our talented, high-performing people and expanded global footprint have allowed us to spot the edge and deliver solid and consistent results,” Mr. Cunningham said. “Our vision is to be a leading global institutional investor, a partner of choice to the investment world and an enabler of complex investments. We have the knowledge, talent, systems and flexibility to seize global opportunities as they arise.”
For more information on PSP Investments’ fiscal year 2018 performance, please visit our dedicated microsite at www.investpsp.com or download the annual report here.