PSP Investments Loses 0.6% in Fiscal 2020

PSP Investments just announced its fiscal year 2020 results and the focus is on long-term results:

• Ten-year net annualized return of 8.5%—above the return objective of 5.7%—generated $32.9 billion of cumulative excess net investment gains.
• Over the last 10 years, PSP Investments’ performance exceeded the performance of the Reference Portfolio by 1.3% per year without incurring more pension funding risk.
• Five-year net annualized return of 5.8% exceeded the policy portfolio benchmark of 5.1%.

The Public Sector Pension Investment Board (PSP Investments) ended its fiscal year March 31, 2020, with a five-year net annualized return of 5.8% and a 10-year net annualized return of 8.5% on its investments. During the same period, PSP Investments generated $32.9 billion of cumulative net investment gains above the return objective over the past 10 years.

The one-year total portfolio net return was -0.6%, reflecting severe market declines due to the global COVID-19 pandemic in the weeks preceding the March 31, 2020 year-end. Nonetheless, this result exceeded the reference portfolio’s[1] one-year return of -2.2%.

The pension investment manager reported $169.8 billion in net assets under management, compared to $168.0 billion the previous fiscal year, an increase of 1.1%.

“I want to thank the PSP Investments team for their work safeguarding the investments made on behalf of the public sector pension plans, many of whose members are among the frontline heroes actively supporting Canadians during the COVID-19 pandemic,” said Neil Cunningham, President and Chief Executive Officer at PSP Investments.

“Despite the decline in equity markets before the year-end, we were able to exceed the reference portfolio for the fiscal year and maintain a long-term return of 8.5%, which outperformed both the 10-year reference portfolio return of 7.2% and the 5.7% long-term return objective,” Mr. Cunningham added. “Strong returns over the past years have helped bring the pension plans into a favourable funding position.”

“Our focus on the long-term horizon has served us well during the global pandemic and has become more important than ever,” said Eduard van Gelderen, Senior Vice President and Chief Investment Officer at PSP Investments. “Before the pandemic, we were preparing for an eventual market downturn after many years of sustained growth in order to be able to respond quickly if a crisis occurred. Our strategies have proven their effectiveness in maintaining our portfolio’s stability and liquidity during tumultuous times.”

As at March 31, 2020:

PMARS, which is composed of Public Market Equities (excluding cash and cash equivalents) and Fixed Income, ended the fiscal year with $81.1 billion of net assets under management, an increase of $0.3 billion from fiscal year 2019. Overall, the group incurred a performance loss of $2.4 billion, for a one-year return of -3.0%. PMARS generated a five-year annualized return of 4.3%. Public Market Equities faced a volatile and challenging environment through the weeks ending the fiscal year: in fewer than five weeks, many of the indices lost approximately 30% of their value, experiencing one of the fastest and most significant stock market declines ever recorded. Fixed Income’s assets under management ended the year at $32.7 billion, up from $29.8 billion in 2019.

Private Equity ended the fiscal year with net assets under management of $24.0 billion, $0.5 billion more than in fiscal year 2019, and achieved a one-year return of 5.2%. Performance income reached $1.1 billion despite significant unrealized valuation losses across the portfolio due to the COVID-19 pandemic. Fiscal year 2020 was marked by continued strong deployment across the U.S. and Europe, largely offset with another record year of dispositions resulting from active monetization of significant direct investments. New co-investments totaling $3.4 billion were made primarily in the health care, financials and technology sectors including, among others, the acquisition of significant interests in Convex, a de novo specialty property and casualty insurance company; Galderma, a leading global provider of skin health products, headquartered in Switzerland; Lytx, a US-based leading provider of video telematics solutions for commercial and public-sector fleets; and Ceva Santé Animale, a French global veterinary health company well positioned to tackle issues related to feeding a growing population.

Credit Investments ended the fiscal year with net assets under management of $13.3 billion, an increase of $2.8 billion from the prior fiscal year, and generated performance income of $488 million, resulting in a 4.3% one-year return that exceeded the benchmark return of -3.7%. The group made $7.2 billion in acquisitions, which were partially offset by $3.9 billion in dispositions driven by the higher churn of its maturing portfolio and opportunistic selling prior to the COVID-19 pandemic and net valuation losses of $1.4 billion. The portfolio is well diversified across asset types, geographies, industries and equity sponsors. Benefitting from strong credit selection, the group has been able to deliver interest income that exceeds that of the benchmark since inception.

Real Estate ended the fiscal year with $23.8 billion in net assets under management, up by $0.3 billion from the previous fiscal year, and incurred a performance loss of $1.0 billion, resulting in a -4.4% one-year return. The 8.3% five-year annualized return exceeded the 6.1% benchmark return. Performance for the current year was affected by COVID-19, which generally had a negative effect on the overall portfolio. The pandemic significantly impacted the value of the global retail portfolio and more specifically the malls in the U.S. The Alberta office portfolio was particularly impacted by the pandemic and the drop in oil prices that exacerbated the negative sentiment on the Alberta economy. The impact on our global industrial assets was more subdued as the sector produced a positive return. Real Estate maintained its focus on building a world-class portfolio of assets in major international cities and deploying into high-conviction sectors. Acquisitions included a large multi-family portfolio in seven U.S. cities in partnership with Berkshire Group, a large industrial portfolio in Mexico with Advance Real Estate and a multi-family portfolio with Starlight Investments in Canada. The group also made strategic disposals of core assets that had attained their objectives in the office sector.

Infrastructure ended the fiscal year with $18.3 billion in net assets under management, a $1.5 billion increase from the prior fiscal year, and generated $1.4 billion of performance income, leading to an 8.7% one-year return exceeding the benchmark of -3.2%. Infrastructure deployment was mostly across North America and Australia and included new direct and co-investments totalling $2.3 billion. Key investments included the take-private of AltaGas Canada, a large Canadian company with natural gas distribution utilities and renewable power generation assets. The group also acquired an interest in AirTrunk, the largest independent operator of hyperscale datacentres in the Asia Pacific region.

Natural Resources ended the fiscal year with net assets under management of $7.6 billion, an increase of $0.8 billion from the previous fiscal year, and incurred a performance loss of $0.4 billion, for a one-year return of -5.2%, exceeding the -5.8% benchmark return. The five-year return for the group was 6.6%, exceeding its benchmark of 1.9%. Since-inception return also remains positive and the group has consistently exceeded its annual benchmark. Performance for the current year was dampened by COVID-19, which significantly impacted the carrying value of the group’s non-core oil and gas assets. The crisis did not have a significant impact on our core agriculture and timberland investments. The year was marked by continued strong deployment of $3.2 billion, mainly in agriculture in both Australia and North America. Notable agriculture investments included the board-supported take-private of one of Australia’s leading agribusinesses, and a buy-and-lease transaction on ~ 11,500 hectares of mature almond orchards and associated water entitlements located in Victoria, Australia. On the timber front, the group increased its exposure to Canadian timberlands in a high-quality asset with a trusted and proven management team.

Total Costs

Over the past five years, PSP Investments has been building the organization and ramping up capabilities to achieve our Vision 2021 Strategic Plan. The business units, strategies and portfolio have undergone significant transformations. We have also continued to pursue internal active management where we have increased the allocation of the portfolio toward more private market asset classes. Finally, we have opened international offices to build local presence in London, New York and Hong Kong. All such efforts have already started to yield benefits indicating that associated costs will pay off.

Expressed in bps of AUM, our total cost ratio is slightly above that of fiscal year 2019. Similarly, the operating costs ratio, a component of our total costs, remained almost at the same level as that of fiscal 2019. Worth noting is that, absent the COVID-19 pandemic’s impact on AUM, both, the total cost ratio as well as the operating costs ratio would have been more favourable. In fact, the operating costs ratio would have been lower in fiscal year 2020 than in fiscal year 2019.

Corporate Highlights

• Our risk management and monitoring system prompted PSP Investments to assemble a COVID-19 Task Force in mid-January. This contributed to PSP Investments being one of the early movers in response measures and created a seamless shift to working from home starting March 2020. Some of the actions taken to support management’s cost-saving measures included suspending an increase in Directors’ compensation and temporarily freezing external hiring and annual salary increases. Moreover, PSP Investments established a special COVID-19 Emergency Relief Initiative, which raised over $700,000 for charity, of which the executive team and the Board Directors contributed $300,000. The funds will help the Red Cross, United Way, Community Foundations of Canada and HealthPartners. In addition, PSP Investments’ CEO, Neil Cunningham, donated 50% of his FY20 salary to COVID-19-related charities.
• In fiscal year 2020, we advanced our total fund investment approach as part of our One PSP vision and five-year Vision 2021 strategic plan. Our Chief Investment Office launched several initiatives to enhance our ability to apply a total fund perspective when crafting investment strategies, making business decisions and managing risk, leverage and liquidity. Our Total Fund approach continued to evolve as we shifted to anchoring our performance and programs to our Reference Portfolio, which will be operationalized in fiscal year 2021.
• We continued to deliver on our optimization program and seamlessly transitioned to a new custodian bank to support our global expansion in a cost-efficient manner. We also advanced our digital strategy to be more effective and scaled and secured technology to gain better portfolio insights and enable robust analytics and data-driven investing. We further ingrained innovation within the organization, with new investment strategies being incubated in all asset classes that leverage long-term market trends and disruptive technologies.
• We ramped up operations in our Asian hub, with our team there successfully deploying our Asian strategy and establishing solid relationships with local partners. We expanded our presence locally with additions to our local Private Equity and Infrastructure teams.
• We continued to develop our talent and enhance the employee experience. As part of our suite of development programs called The PSP Way, we created a new curriculum for first-time managers and launched the Leadership Journey program for senior leaders. We continued to prioritize inclusion and diversity through our eight affinity groups whose initiatives included a one-week forum offering 18 sessions with over 600 employees participating. Our employee engagement consistently scored well above industry norms.
• We continued to embed environmental, social and governance considerations into every aspect of the investment process, across all asset classes. Accomplishments included significant progress on assessing the investment portfolio’s exposure to climate change risks and opportunities to ensure the resilience of PSP Investments long-term asset allocation. Our fourth annual Responsible Investment Report can be consulted here.

“In these difficult times, we want to reassure contributors and beneficiaries about our solid long-term financial performance that sustains the pensions of those who have served our country,” said Neil Cunningham, President and Chief Executive Officer at PSP Investments. “We built our investment portfolio and organization to be resilient and diversified. This approach has made a difference during the health crisis the world is currently experiencing.”

“Looking to the future, fiscal year 2021 marks the last year of our Vision 2021 strategic plan,” added Mr. Cunningham. “We will now work to consolidate the foundation we’ve built to support our future growth, resilience and stability in an increasingly changing investment environment. As we start to develop the next iteration of PSP Investments’ strategy, I would like to express my thanks to our team around the world for rising to each new challenge and continuing to spot opportunities that emerge.”

For more information on PSP Investments’ fiscal year 2020 performance, visit www.investpsp.com or download the annual report here.

About PSP Investments

The Public Sector Pension Investment Board (PSP Investments) is one of Canada's largest pension investment managers with $169.8 billion of net assets under management as of March 31, 2020. It manages a diversified global portfolio composed of investments in public financial markets, private equity, real estate, infrastructure, natural resources and credit investments. Established in 1999, PSP Investments manages net contributions to the pension funds of the federal Public Service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force. Headquartered in Ottawa, PSP Investments has its principal business office in Montréal and offices in New York, London and Hong Kong. For more information, visit www.investpsp.com or follow us on Twitter and LinkedIn.

[1] PSP’s Reference Portfolio is a simple portfolio composed of publicly traded securities that could be passively managed at minimal cost. The Reference Portfolio is designed in such a way that, based on our long-term capital market assumptions, it is expected to deliver the Return Objective over the long-term with minimum investment risk.

Before I get into my analysis of PSP's fiscal 2020 results, make sure you download and carefully read the 2020 Annual Report here.

On page 2, Martin Glynn, the Chair of the Board, wrote a message on maintaining a long-term outlook. I note the following on the Board's responsible approach:

The Board oversaw several other initiatives throughout the year to position PSP for long-term success, including the evolution of the organization’s total fund approach to managing its investment portfolio.

The Board was increasingly focused on PSP’s responsible investment activities, recognizing the extent to which environmental, social and governance (ESG) factors are changing the world and can affect long-term investment returns. With climate change being a growing concern for investors worldwide, we closely tracked the implementation of PSP’s climate change approach. In the last year, significant progress was made on assessing the investment portfolio’s exposure to climate change risks and opportunities. We were pleased to note that the latest climate change scenario analysis reconfirmed the resilience of PSP’s long-term asset allocation approved by the Board.

We were also pleased to see our Chief Investment Office engage more proactively and frequently with key Government of Canada officials and the Treasury Board Secretariat, continuing to fulfill our fiduciary duty, while maintaining the integrity of the arm’s-length relationship we have with the federal government.

I wonder who are PSP's liaisons at the Treasury Board Secretariat nowadays but I think very highly of PSP's CIO, Eduard van Gelderen, he's very sharp and nice.

On page 4 of the Annual Report, you will read Neil Cunningham's message. In terms of COVID-19 preparedness, I note this:

On the operational side, our risk management and monitoring system provided early warning of the onset and spread of the virus, prompting us to assemble a COVID-19 Task Force in mid-January. This contributed to PSP being one of the early movers in a series of decisions, including implementation of travel restrictions and later travel bans, activation of our business continuity plan, and ultimately the decision for all PSP employees to work from home. Remote working is an ongoing element of our talent value proposition, which assists employees in managing their work-life balance and dealing with other short-term disruptions. It is a testament to the planning and effectiveness of our Technology and Digital Strategy team that we were able to leverage this capability and shift the entire organization, including all trading and related activities, to working from home in less than 24 hours after we made the decision to do so.

It should be noted that both CDPQ and PSP were "early movers" on COVID-19 because a) they took it seriously (and read my blog carefully on asymptomatic transmission) and b) the Quebec government moved quickly to shut the economy down (in fact, CDPQ moved first and PSP followed later that week).

In terms of delivering on their edge, Neil Cunningham notes the following:

I’m also proud of the fact that our sustained commitment to our five-year Vision 2021 strategic plan enabled us to achieve several key objectives a full year ahead of schedule. Among our fiscal year 2020 accomplishments:

• We advanced our total fund investment approach—with our asset classes at their target allocations, it has become increasingly important to manage our portfolio from a total fund perspective. In fiscal year 2020, our Chief Investment Office launched several initiatives to enhance our ability to apply a total fund perspective when crafting investment strategies, making business decisions and managing risk, leverage and liquidity.
• We expanded our presence in Hong Kong—after the initial opening of our Asian hub and hiring of our first employees during last year’s fourth quarter, we continued the roll-out of our Hong Kong presence with additions to our Private Equity and Infrastructure teams there. This roll-out has been delayed from our original plans due initially to local protests and later by the coronavirus, but our long-term ambition and commitment to have an expanded footprint in the region remains unchanged.
• We further ingrained innovation within the organization—all asset classes are incubating new investment strategies that leverage long-term market trends and disruptive technologies. We also advanced our digital strategy, aimed at improving efficiency, gaining better insight into our portfolio and enabling robust data-driven investing.
• We continued to develop our talent and enhance the employee experience at PSP—as part of our suite of development programs, The PSP Way, we refreshed the curriculum for first-time managers and launched the Leadership Journey program for senior leaders. We continued to prioritize inclusion and diversity (I&D) through our eight affinity groups which promote various internal and external initiatives, including our biennial I&D Forum, a one-week event held in November. The 2019 forum offered 18 sessions and more than 600 employees participated. In addition, we started ongoing employee engagement surveys every six weeks and consistently achieved engagement scores well above industry norms.

Neil also made some changes at the senior management level:

To help lead us in this new era, we announced a number of senior-level promotions in fiscal year 2020. Among them, Guthrie Stewart was appointed to the newly created role of Vice Chair, Investment Committee, where as of June 1, he will act as a senior representative of PSP in facilitating a strong linkage between strategic goals, investment ambitions and partner relationships. David Scudellari, who so capably served as PSP’s interim Chief Financial Officer (CFO) for four months in fiscal year 2020, was appointed Senior Vice President and Global Head of Credit Investments and Private Equity, effective June 1. Taking on the CFO role was J.F. Bureau, who was appointed Senior Vice President and Chief Financial and Risk Officer. Giulia Cirillo was appointed Senior Vice President, Chief Human Resources and Global Communications Officer.

So, the role of CFO & CRO was merged. I believe PSP is the only pension in the world which has merged the CRO & CFO function and that is concerning.

Importantly, I'm not questioning J.F. Bureau's capabilities (don't know the man) but some might rightly worry that it raises serious governance concerns as a lot of power will be concentrated in his hands. I think PSP should have explained this merger of roles a lot more clearly in the annual report.

David Scudellari was appointed Senior Vice President and Global Head of Credit Investments and Private Equity. That's a huge responsibility but I'm sure he's going to do a great job.

As for Guthrie Stewart, his appointment to this newly created role of Vice Chair, Investment Committee seems like a first step before he announces his retirement from the organization, similar to what happened to Jane Rowe at OTPP.

Anyway, let me delve into PSP's fiscal 2020 results. Please note management's discussion of the fund's performance and results begins on page 19 of the Annual Report.

Take the time to read this section very carefully, you will find a lot of detailed information on the asset mix, benchmarks for the reference portfolio, etc.

I'm just going to delve right into it:

As you can see, the overall results for fiscal 2020 were slightly down (-0.6%) but they did manage to beat their benchmark reference portfolio by 100 basis points (it returned -1.6%).

Not surprisingly, the press release above focuses on the ten-year annualized return of 8.5%, which outperformed both the 10-year reference portfolio return of 7.2% and the 5.7% long-term return objective.

To be sure, it’s the long-term performance of a pension that counts but I want to delve a bit more deeply into the performance of the last fiscal year to see what went wrong.

Public Equities suffered the worst performance in fiscal 2020 (-11.2%), underperforming its benchmark by 120 basis points. No surprise there as PSP's fiscal year ends at the end of March and global stocks posted one of the worst quarters on record in Q1 2020.

They have since bounced big due to the unprecedented and swift monetary and fiscal policy responses but it remains to be seen how they end the calendar year and PSP's fiscal year 2021 and whether the gains will remain concentrated in a few big tech companies or will be more broadly based.

What surprised me a little was the poor performance of PSP's Real Estate assets which represent 14% of total assets. Real Estate incurred a performance loss of $1.0 billion, resulting in a -4.4% one-year return.

The press release states:

[...]  the pandemic significantly impacted the value of the global retail portfolio and more specifically the malls in the U.S. The Alberta office portfolio was particularly impacted by the pandemic and the drop in oil prices that exacerbated the negative sentiment on the Alberta economy.

Again, no surprise there but it seems like they used the pandemic to take some significant write-downs in the Retail portfolio which makes up roughly 13% of the Real Estate portfolio and write down some underperforming Alberta office space too:

Stefano Bertolli, Vice President, Public Affairs and Strategic Communications at PSP was kind enough to answer some questions I had after reading the Annual Report.

He told me while 23.8% of the global portfolio is invested in offices, Alberta offices represent 1.7% of their global real estate portfolio.

He also told me that they remain the 100% owner of Revera, a long-term care facility, and invited me to reach out to the company for a comment on how they faced the COVID-19 crisis and how they are preparing for a potential second wave.

In Private Equity, the Annual Report explains how the pandemic hit valuations there:

Private Equity achieved a one-year rate of return of 5.2% in fiscal year 2020, compared to a benchmark return of 6.9%. Performance income of $1.1 billion includes $1.6 billion of net valuation losses partly offset by $1.3 billion of distributed income. Performance income also significantly benefited from currency gains, which increased the one-year rate of return and the benchmark of the asset class by 6.4%.

A significant detractor of the fiscal year 2020 performance was the COVID-19 pandemic which led to a significant market decline and resulted in net valuation losses across the portfolio but more importantly to the investments in the industrials, consumer discretionary and materials sectors. Despite these markdowns, the direct and co-investments in the US financial sector recorded significant valuation gains benefiting from continued growth and strong operating performance. In addition, the successful exits completed earlier in the year also positively contributed to the overall performance.

Over five years, Private Equity achieved a rate of return of 7.2%, compared to a benchmark return of 11.3%, primarily due to the underperformance of certain investments in the communications and consumer staples sectors. However, that portion of the portfolio invested over the past five years (which represents the largest portion of AUM), since a change in asset class strategy, has generated a five-year return in excess of the benchmark.

Below, you can see the sector and geographic breakdown of PSP's Private Equity portfolio:

As shown, 54% of the PE assets are in the US and another 28% are in Europe, so there is room to grow Emerging Markets and Asia which is why they are ramping up their Hong Kong office.

In terms of sectors, consumer discretionary, financials, health care and communications make up the bulk of the portfolio but the pandemic hit valuations in the industrials, consumer discretionary and materials sectors.

Mr. Bertolli told me that co-investments make up approximately half of PSP's Private Equity portfolio and that's important because they pay no fees there (it's a form of direct investment) and that's where most Canadian pensions focus on ramping up their PE portfolio.

It's worth noting PE returns have been coming down at all of Canada's large pensions and that's a factor of increased competition and poor distributions over the last year.

What else? While CPPIB posted a gain of 3.1% for its fiscal 2020 which also ends at the end of March, it has 25% of its total assets in Private Equity (relative to 14% for PSP) and posted better returns in Private Equity and Real Estate compared to PSP last fiscal year:

That explains the difference in performance between these two large Canadian pensions but again, I would caution you not to make direct comparisons as they have different asset mixes and reference portfolios.

PSP's Credit Investments which make up 8% of the total assets did outperform CPPIB's last fiscal year, delivering a gain of 4.3% that exceeded the benchmark return of -3.7%.

The press release states:

The group made $7.2 billion in acquisitions, which were partially offset by $3.9 billion in dispositions driven by the higher churn of its maturing portfolio and opportunistic selling prior to the COVID-19 pandemic and net valuation losses of $1.4 billion. The portfolio is well diversified across asset types, geographies, industries and equity sponsors. Benefitting from strong credit selection, the group has been able to deliver interest income that exceeds that of the benchmark since inception.

I asked Stefano Bertolli if he could clarify and he shared this with me:

"As the Credit Investments portfolio matured, we saw higher repayment levels. This is in line with our expectations and - noting that we are just over 4 years into the asset class - is reflective of assets that have a 7 or 8 year maturity but at the same time an average expected life of 4 years. Given our “close to the top of the cycle view”, we selectively chose to engage in some secondary selling which contributed to the dispositions figure."

Very interesting which is why David Scudellari and his team will be busy over the coming year as we enter the insolvency phase of the health care crisis.

Coronavirus a 'once-in-a-lifetime opportunity' for debt investors: Billionaire Marc Lasry https://t.co/eUkSojIz2G via @YahooFinance

— Leo Kolivakis (@PensionPulse) July 8, 2020

In Infrastructure, I note this from the Annual Report:

The group is focused on direct investments, including through industry platforms and co-investments. Platforms, one of the cornerstones of the group’s strategy, provide several compelling advantages such as allowing us to leverage sector-specific knowledge and expertise, targeting and managing greenfield investments and expanding our reach in terms of access to key relationships and partners.

And in terms of performance last fiscal year:

Infrastructure achieved a one-year rate of return of 8.7% in fiscal year 2020, compared to a benchmark return of -3.2%. Total performance income reached $1.4 billion, driven by distributed income of $0.7 billion and foreign exchange gains of $0.7 billion, which increased the one-year rate of return and the benchmark of the asset class by 4.3%.

Despite volatile performance related to the COVID-19 pandemic, the direct investments in the utilities sectors, more specifically in the renewables sub-sector, in North America, recorded significant valuation gains benefiting from a stable regulatory and contractual environment, which were partly offset by provisions taken in the Transportation sector.

Over five years, Infrastructure achieved a solid rate of return of 12.1%, compared to a benchmark return of 4.6% primarily due to the strong performance of investments in the transportation and utilities sectors.

Mr. Bertolli also shared this with me:

"PSP Investments has not sold its stake in Athens Airport. Regarding our performance, within the Infrastructure group, direct investments in the utilities sectors, more specifically in the renewables sub-sector, in North America, recorded significant valuation gains benefiting from a stable regulatory and contractual environment."

Good stuff, PSP also outperformed CPPIB in Infrastructure last fiscal year (it posted a loss of 1%) but I believe over the last five years, their returns in this asset class are very similar.

Below, you can see the sector and geographic breakdown of PSP's Infrastructure portfolio:

Interestingly, Europe, Emerging Markets and the US are where most of the Infrastructure assets are invested and Industrials and Utilities are the top sectors, making up just over 80% of total infrastructure assets.

Lastly, the Annual report states this for Natural Resources:

Natural Resources’ one-year rate of return was -5.2% for fiscal year 2020, compared to a benchmark return of -5.8%. The Portfolio’s net loss was $381 million, mainly driven by net valuation losses of $548 million partially offset by distributed income of $184 million. A significant detractor from absolute performance was the COVID-19 pandemic and its impact on the fair value of certain assets. The crisis especially impacted the portfolio’s non-core oil and gas assets due to a decrease in demand in an already overly supplied market. COVID-19 did not have a significant impact on the agriculture or timberland investments, which largely remained resilient.

Over five years, Natural Resources achieved a rate of return of 6.6%, compared to a benchmark return of 1.9%, primarily due to strong performance from our timberland assets and accretive asset valuations from our agriculture investments.

Stefano Bertolli shared this with me:

"Since the end of FY2017, our Natural Resources group has been focused exclusively on agriculture and timber. The oil & gas assets reflect historical investments in/commitments to upstream O&G funds and related co-investments which will be monetized opportunistically over time."

The bulk of the Natural Resources assets (60%) are invested in Australasia and another 34% in North America:

I have given you a detailed overview on the performance of PSP's private market assets because the pandemic hit Real Estate, Private Equity and Natural Resources while Infrastructure was spared despite some weakness in transportation assets.

Let me end this long comment by providing you a summary of executive compensation at PSP:

Please take the time to read the Fiscal 2020 Annual Report to understand how compensation is set and remember it is based on long-term performance over the reference portfolio (five year annualized returns).

Also worth noting this:

Some of the actions taken to support management’s cost-saving measures included suspending an increase in Directors’ compensation and temporarily freezing external hiring and annual salary increases. PSP Investments established a special COVID-19 Emergency Relief Initiative, which raised over $700,000 for charity, of which the executive team and the Board Directors contributed $300,000. The funds will help the Red Cross, United Way, Community Foundations of Canada and HealthPartners. In addition, PSP Investments’ CEO, Neil Cunningham, donated 50% of his FY20 salary to COVID-19-related charities. 

Neil Cunningham is a class act, he too will be retiring in the coming years and I can assure you he's not doing this job in a post-COVID world for the money (he has enough to retire now).

I reached out to Neil earlier today to discuss fiscal 2020 results but he told me the same refrain, PSP doesn't do interviews.

Still, he put me in touch with Stefano Bertolli who was kind enough to answer all my questions.

I personally think PSP should make an exception for this pension blogger and grant me interviews in the future. Trust me, it's the least they can do and I want to see PSP and all of Canada's large pensions hire more people with disabilities (stop giving me excuses, just do it!!).

What else? Earlier this week, I discussed the importance of pension communication and stated that PSP and BCI need to step up their game in this department (nowhere close to what their peers do).

I'm not stating this to be overly critical, it's just unacceptable that two of the largest pension funds in Canada don't do more to communicate more often and be a lot more transparent with the public.

I want to see more YouTube clips featuring PSP's CEO, CIO and heads of their investment portfolios.

Last year, Neil Cunningham and  Eduard van Gelderen did post something on YouTube but COVID might have made this difficult this year.

So I end this comment by saluting members of the Canadian Armed Forces who were deployed to long-term care facilities in Quebec and elsewhere in Canada to help our most vulnerable citizens during this pandemic. PSP manages their pensions and I'm glad they're in good hands.

More worrisome, however, the Canadian military's report into Quebec's long-term care homes during the COVID-19 crisis found ongoing staff shortages and issues with the use of personal protective equipment. It's a scandal, one we need to shine a light on if we never want to repeat it ever again.

Update: One of my readers shared this with me after reading this comment:

PSP has done clearly well in this difficult context. From what I have heard, the $1 bn write-down in real estate was the result of PSP deciding to take all the write-down now (end of March). The reality is values have not dropped so much yet and they might not, so next year, they should have a gain. Hats off to them for this strategy, which should pay off.

I thank her for  her insights and she is absolutely right, PSP (and others) used the pandemic to take some big write-downs during their fiscal year and they will revalue these assets up when the cycle turns more positive.