The Public Sector Pension Investment Board (PSP) reported a 6.5 percent return for its fiscal year ending March 31, 2026, in a challenging market environment marked by volatility and inflation concerns. The fund, which manages pensions for Canada’s federal public service, Canadian Armed Forces, and RCMP, increased its net assets to $320.6 billion, a rise of 7 percent from the previous year.

In response to heightened economic uncertainty and inflationary pressures, PSP adjusted its portfolio by boosting investments in Canadian equities by two percentage points within its $92.8-billion stock holdings. The Canadian stock segment delivered a strong 20.6 percent gain, providing some inflation protection due to revenues tied to rising prices. Additionally, PSP expanded its exposure to infrastructure assets, which typically benefit from inflation-linked contracts, aiming to further shield the portfolio from inflation’s effects.

Despite these gains, the fund’s overall return fell short of its internal benchmark of 13.1 percent and the federal government’s reference portfolio return of 11.7 percent. A significant drag on performance came from private-market investments. Real estate assets posted a $2.1-billion loss, declining 7.3 percent in value. PSP attributed these results to a shift from an opportunistic to a more disciplined investment strategy, focusing on fewer sectors within core markets. The organization noted emerging opportunities to divest some real estate holdings after a period of limited deal activity.

Private credit also underperformed, earning 3.1 percent amid concerns over loan valuations tied to sectors vulnerable to artificial intelligence disruption. PSP observed that the private credit market is absorbing risks related to aggressive loan structures extended during 2021 and 2022. Similarly, private equity investments gained 5.3 percent but faced ongoing challenges. Nonetheless, PSP generated $8.6 billion in cash distributions through asset sales and refinancing in the private equity space. The fund has now reached its target allocation in private equity, providing flexibility amid a market reset.

Currency fluctuations also influenced results, with reduced exposure to the U.S. dollar limiting losses from currency movements, which reduced total investment gains by 2.2 percent during the fiscal year. This compares with an 8.8 percent currency-driven gain in the previous year. PSP’s CEO Deborah Orida noted that the U.S. dollar’s role as a safe haven has diminished due to recent global events.

Throughout the year, PSP invested approximately $10 billion in Canadian stock and private assets, reflecting optimism about the federal government’s efforts to attract investment. Ms. Orida emphasized that while volatility and uncertainty are increasing, the fund is well positioned to meet its long-term pension obligations. Over the past decade, PSP’s average annual return of 8.8 percent has surpassed its benchmark of 8.4 percent and the reference portfolio return of 8.2 percent.