By Scott Smith – Allan Fenton, National Post – Posted June 29, 2018 02:02:04 Canadian pension plans are on track to pay out more money in 2022 than expected.
That means investors who invest in Canadian pension funds are looking for better returns on their money, said Kevin Dickson, chief investment officer at Scotia Capital in Toronto.
That’s why investors are taking a gamble on the government’s promise to invest in the Canadian Pension Plan Investment Board.
The CPPIB will spend about $1 billion on its new capital investment plans this year, which are intended to help fund the government pension plan and other public and private-sector investments.
The board’s annual budget forecasts the CPPIPIB will receive about $2.6 billion this year from the federal government and $1.9 billion next year, about $7.8 billion more than it expected.
The investment board is currently forecasting about $4.3 billion this fiscal year and about $3.2 billion next, according to a statement issued Tuesday.
In an effort to meet those expectations, investors will be looking for the government to increase its investment in its existing portfolio of CPPI products and to add new investments, said Dickson.
If that happens, the CPAIB will be able to spend $3 billion on a new asset management fund and to invest about $500 million in the pension plan’s public pension plan, which is the largest of the four government pension plans.
The pension fund will be up to $11.3 million this year and $6.4 million next year.
The other two funds will be $5.9 million and $3 million, respectively, in 2018.
That puts the CPMIB at about $10 billion in 2020 and about a half-billion dollars next year as well.
But it’s the public pension fund that will benefit the most, Dickson said.
Its $4 billion in investment this year will pay for the new CPPIRB investment plan.
The plan is meant to support public sector pension plans, and it’s expected to add about $300 million in cash to the fund this year.
“We think the public sector is going to be really big this year,” said Denton, adding that it will contribute to a total of about $9 billion in pension contributions in 2020.
In 2020, the public service pension plan will contribute about $600 million, while the federal public service plan will add about another $400 million.
The government is also expected to invest $300 to $400 billion in its private-equity funds this year in a bid to boost the performance of its holdings.
“There is going be a lot of money in private equity investing in this country this year so I think there is a lot that will come back,” Dickson added.
He said it’s not clear whether investors will take a hit on their portfolios.
The S&P 500 index is up about 1.8 per cent this year through Tuesday’s close.