OTTAWA - The Public Sector Pension Investment Board has written down 23 per cent of its $1.97 billion in asset-backed commercial paper holdings.

The board, which handles pension investments for federal public servants, said Tuesday that the writedown was worth $450 million for the year ended March 31.

PSP Investments also said its overall portfolio declined by 0.3 per cent in the fiscal year, the first drop since 2003.

"This was the first time in the last five years, and since I became president, that we generated a one-year total return below that of our policy benchmark," fund president Gordon Fyfe wrote in a letter included with the annual report.

"However, it is important to keep in mind that in a period of severe stress and volatility, preservation of capital and minimization of investment losses are our overarching priorities."

In addition to the writedown of ABCP which has been frozen since last August, PSP Investments wrote down $470 million related to its $1.4-billion exposure to collateralized debt obligations, complex structured instruments based on a variety of debts.

Canadian ABCP was a victim of last summer's crisis in U.S. subprime mortgages, amid worries that some of the short-term paper was tied to dodgy American home loans, in addition to bundles of higher-quality mortgages, car loans, credit card receivables and other assets.

PSP Investments is regarded as having the second-largest holding of Canadian non-bank ABCP, behind the $13 billion held by the Caisse de depot et placement du Quebec.

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