On April 1, 2006 we introduced the CPP Reference Portfolio and implemented it in fiscal 2007. It serves as a performance benchmark against which the CPP Investment Board’s value-added activities are measured. It is not the actual portfolio and does not function as a traditional pension fund policy portfolio.

The Reference Portfolio represents a low-cost strategic alternative to the actual CPP Fund that would earn sufficient returns over the long term to help sustain the current CPP contribution rate at 9.9 per cent. The objective of the CPP Investment Board is to create value-added investment returns above and beyond those that the Reference Portfolio would generate. We achieve this by investing in asset classes that diversify risk and enhance returns and by utilizing investment strategies not represented in the Reference Portfolio. As always, in the challenge to add value, the CPP Investment Board adheres strictly to its mandate to maximize returns without undue risk of loss.

The current composition of the Reference Portfolio benchmark is 45 per cent foreign developed market equities, 25 per cent Canadian nominal fixed income, 15 per cent Canadian equities, 5 per cent Canadian real return bonds, 5 per cent emerging market equities, and 5 per cent foreign sovereign bonds. The composition of the actual CPP Fund will invariably differ from the Reference Portfolio. In the actual portfolio there are no specific allocations to asset classes. Instead, in the pursuit of value-added returns we make investment choices guided by the underlying risk/return characteristics of individual investments rather than by which asset class they represent.

Broad market indexes maintained by organizations such as S&P/Citigroup and Scotia Capital are used to measure the performance of the Reference Portfolio. This provides the board of directors, management and CPP stakeholders with an understandable and demanding investment benchmark to evaluate the investment performance of the CPP Investment Board.