Montréal, Canada (June 11, 2019) - The Public Sector Pension Investment Board (PSP Investments) announced today that it ended its fiscal year March 31, 2019, with net assets under management (AUM) of $168.0 billion, compared to $153.1 billion the previous fiscal year, an increase of 9.7%. The investment manager also reported a one-year total portfolio net return of 7.1% and a 10-year net annualized return of 10.7% on its investments and generated $90.1 billion of cumulative 10-year net performance income and $48.8 billion of cumulative net investment gains above the return objective.
“We have great reason to be proud of our strong performance and evolution on the world stage,” said Neil Cunningham, President and Chief Executive Officer at PSP Investments. “We saw robust levels of investments throughout fiscal year 2019 and, despite market headwinds, these results clearly show the long-term success of our diversified investment approach in delivering value for our stakeholders.”
“Fiscal year 2019 was impacted by higher volatility in public markets amid concerns of a global economic slowdown”, added Mr. Cunningham. “Our performance demonstrates the benefits of our strategy to diversify the portfolio across a number of public and private asset classes, to produce a strong positive overall return. Likewise, our strategic partners and platforms across all asset classes continued to generate attractive risk-adjusted investment opportunities, as we all worked together to spot the edge on investments to generate robust long-term returns.”
PSP Investments’ net assets increased by nearly $15 billion during fiscal year 2019. The increase is attributable to net contributions of $3.7 billion received by PSP Investments and the net return of 7.1% in the current fiscal year.
|ASSET CLASS||NET ASSETS UNDER MANAGEMENT* (millard $)||ONE-YEAR RETURN||FIVE-YEAR RETURN||% OF TOTAL NET ASSETS|
*This table excludes Cash and Cash equivalents.
**Annualized return since inception (3.3 years).
***Annualized return since inception (2.2 years).
As of March 31, 2019:
Public Markets, which is composed of Public Markets and Absolute Return Strategies (PMARS) and Fixed Income, finished the year with $80.8 billion of net assets under management, an increase of $4.1 billion from fiscal year 2019. Overall, the group generated a performance income of $3.6 billion, for a one-year return of 4.6%. With an ending AUM of $51.0 billion, slightly down from $51.8 billion in 2018, PMARS faced a volatile and challenging environment for active investment management this fiscal year. Notable contributors to PMARS’ performance were the Global Investment Partnerships Portfolio that performed well in these difficult conditions, adding more than $110 million in value and the internally managed long-only strategies which outperformed their respective benchmarks. In the last five years, PMARS generated significant returns, with a five-year annualized return of 9.3%. Fixed Income’s assets under management ended the year at $29.8 billion, up from $24.9 billion in 2018, generating a five-year annualized return of 4.8%.
Private Equity had net assets under management of $23.5 billion, $4.1 billion more than in fiscal year 2018, and achieved strong results with a one-year return of 16.1%. Performance income reached $3.2 billion. This is a continuation of the improved performance that began with a new investment strategy implemented during fiscal year 2016. The growth of the portfolio was mainly driven by acquisitions of new direct and co-investments, largely offset with a record year of dispositions, especially in the direct portfolio where we exited investments in Orange Life Insurance and Sky Leasing, as well as Antelliq, which closed after fiscal year-end. New co-investments were made primarily in the industrial, health care, communications and financial sectors with the acquisition of significant interests in Alliant Insurance Services, Azelis and Wittur Group, among others. In 2019, Private Equity signed new fund commitments of $3.5 billion, through 16 new funds.
Private Debt had net assets under management of $10.5 billion, an increase of $1.6 billion from the prior fiscal year, and generated performance income of $837 million, resulting in a 9.2% one-year return. The outperformance was mainly driven by credit selection and fee income. The group deployed net $1.6 billion, reflecting $5.2 billion in acquisitions partially offset by $3.6 billion in dispositions, driven by the higher churn of the maturing portfolio. The group’s portfolio is well diversified across geographies, industries, equity sponsors and asset types, heavily weighted toward floating rate exposure and reflects the contribution of the fully ramped-up Private Debt team in London.
Real Estate had $23.5 billion in net assets under management, up by $0.3 billion from the previous fiscal year, and generated $1.7 billion in performance income, resulting in a 7.6% one-year return. Real Estate’s focus was on optimizing the portfolio. Net deployments were close to break-even as the group disposed of many core assets with completed business plans in the office and multifamily sectors in the US and non-strategic assets in Brazil and in the US. The group also recapitalized the student housing portfolio in London with Greystar. With a low-yield environment making it more challenging to acquire core assets, the strategy behind a number of acquisitions in North America and emerging markets was value-add or opportunistic. The largest single acquisition was the Downsview airport land in Toronto, which is a long-term re-development project that aligns with Real Estate’s build-to-core strategy in primary and growth markets. During fiscal year 2019, Darren Baccus was appointed as Senior Vice President and Global Head of Real Estate and Natural Resources.
Infrastructure had $16.8 billion in net assets under management, a $1.8 billion increase from the prior fiscal year, and generated $1.1 billion of performance income, leading to a 7.1% one-year return, primarily attributable to investments in the transportation and utilities sectors in Europe and North America. The group deployed $1.7 billion in new direct and co-investments in fiscal year 2019, while disposing of non-strategic investments totalling $0.6 billion. Infrastructure deployment was mostly across Europe and the US. Key investments included the acquisition of a majority interest in Forth Ports, the third-largest port operator by volume in the UK, and the acquisition by Roadis, PSP’s road platform, of a controlling interest in two roads located in Portugal. Portfolio geographic diversification evolved with increased exposure to the US market and decreased exposure in Europe, Asia and Oceania.
Natural Resources had net assets under management of $6.8 billion, an increase of $2.0 billion from the previous fiscal year, and generated performance income of $574 million, for a one-year return of 11.1%. Fiscal year 2019 was marked by continued strong deployment in Australia, North America and selected regions in Latin America with significant investments in new agriculture joint ventures. Notable developments also included the strategic alliance of TimberWest and Island Timberlands, leading to the establishment of Mosaic Forest Management, which enables the shared use of facilities, enhanced forest stewardship and alignment of best practices.
PSP Investments’ total cost ratio was 67.3 cents per $100 of average net investment assets in fiscal year 2019, compared to 69.8 cents in fiscal year 2018, and 70.5 cents in fiscal year 2017. Operating costs have remained constant at 31.7 cents for fiscal year 2019, the same as for fiscal year 2018. The stability in our cost ratios reflects PSP Investments’ focus on enhanced cost management as we achieve our Vision 2021 strategic plan. These ratios can vary year-over-year as they are impacted by net AUM’s fluctuations.
• We expanded our global footprint, opening a third international office in Hong Kong to support our global portfolio. Within the framework of our Vision 2021 plan, we significantly scaled our investment strategies, added new asset classes and are well on track to reach over $250.0 billion of assets under management by 2028.
• As part of our One PSP vision, we implemented a total fund approach to our investment strategies, decision-making processes and risk management, while maintaining an entrepreneurial and agile culture. In July, Eduard van Gelderen was appointed as Senior Vice President and Chief Investment Officer, bringing strong market knowledge, investment expertise, international experience and leadership skills.
• We implemented our new and far-reaching Talent Value Proposition to enhance the overall employee experience with a focus on moments that matter in attraction, development, reward and retention, as we continued to make inclusion and diversity a leadership commitment. At PSP Investments, women hold 36.4% of senior positions, while members of visible minority groups represent 18.5% of our Canadian workforce.
• We continued to affirm our commitment to inclusion and diversity (i&D) through the work of our i&D Council, co-chaired by our President and CEO and Chief Human Resources Officer. Our i&D strategy promotes a wide variety of viewpoints and a respectful work environment that encourages and values differences. During fiscal year 2019, 60 very committed PSP employees led at least one major activity for each of our eight affinity groups and leveraged technology to include employees across our Canadian and international offices.
• We deployed our new brand —Spot the edge—across multiple platforms, positioning PSP as an employer, partner and investor of choice.
• We continued to embed environmental, social and governance considerations into every aspect of the investment process, across all asset classes. Accomplishments included achieving key milestones in our multi-year climate change strategy, broadening engagement with public issuers on healthy corporate culture and conduct, and promoting meaningful disclosure practices. Our third annual Responsible Investment Report can be consulted here.
“The Total Fund perspective has been a top corporate priority for PSP since the beginning of Vision 2021,” said Eduard van Gelderen, Senior Vice President and Chief Investment Officer at PSP Investments. “Significant progress has been made to lead the organizational shift toward a balanced mix of bottom-up and top-down strategies. We are very pleased to see that the collaboration between the asset classes, the CIO Office and the Risk department has led to new investment insights. This integrated approach remains a top priority in the year to come.”
“Thanks to our expert and diverse team, PSP has developed a worldwide reputation as an investor that spots the edge and has an inclusive and diverse culture,” said Mr. Cunningham. “As we enter our twentieth year of operations, our focus on the long-term horizon and on building a world-class team continues to drive our investment efforts on behalf of contributors and beneficiaries who have dedicated their careers to serving Canada.”