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Canadian pension fund giant Caisse de dépôt et placement du Québec tallied a 7.7 per cent return for 2020, as profits from private credit and equity investments helped overcome continuing trouble in its real estate holdings.

The Caisse generated returns worth $25-billion in 2020, boosting its net assets under management to $365-billion at the end of the year, the Montreal-based fund manager said in results released Thursday. The gains reversed a 2.3 per cent loss sustained over the first half of the year.

In what Caisse chief executive Charles Emond called “an unprecedented environment characterized by sharp contrasts” between various asset classes, the Caisse’s return was nevertheless 1.5 per cent lower than its global benchmark. That was mostly a result of a 15.6 per cent loss in its real estate portfolio, which was caused by the COVID-19 pandemic’s impact on shopping centres and office buildings as authorities ordered people to stay home.

“The pandemic shook the global economy in 2020, even further illustrating the disparity between market valuations and companies’ real growth,” Mr. Emond said in a statement accompanying the results. “The coming years will be challenging due to the ensuing economic consequences, extremely low interest rates and high valuations in multiple sectors.”

The results highlight the magnitude of the headwinds ahead for Mr. Emond, a former Bank of Nova Scotia executive who took over as CEO of the Quebec business pillar about one year ago as global stock markets were climbing to record highs. The COVID-19 pandemic has altered the picture completely since, creating deep problems in many sectors of the global economy.

The health crisis has hurt the pension fund manager’s exposure to shopping centres in particular, many of which have been closed under government lockdown orders. Nathalie Palladitcheff, head of the Caisse’s Ivanhoé Cambridge real estate subsidiary, has in recent months been repositioning its activities by selling underperforming assets and buying others, particularly logistics centres.

Ivanhoé last year sold $2.8-billion worth of properties, including Woodgrove Centre mall in Nanaimo, B.C., according to the Caisse’s disclosure Thursday. The pension fund’s interest is moving toward more mixed-use buildings that integrate commercial, residential and office building elements, Ms. Palladitcheff said in an exchange with reporters.

The Caisse’s biggest “beat” by portfolio class compared with its benchmark was in private equity, which generated a return of 20.7 per cent. Part of the gain was fuelled by the pension fund’s choice of sectors in which to invest, such as technology and health care. Big deals during the year included investments worth $4-billion that resulted in the Caisse becoming the biggest shareholder in train maker Alstom SA.

Fixed income also did well, with a 9 per cent return for the year. The pension fund has been expanding its private credit activities, which it says perform better over the long term than traditional bonds. Among its big credit transactions in 2020, the pension fund was part of a group that committed a £1.87-billion financing for Ardonagh Group, the U.K.’s biggest independent insurance broker.

The Caisse’s stock market returns benefited from exceptional government and central bank stimulus. But the 8.3 per cent return for the year underperformed the 12.9 per cent return of the benchmark index, in part because it had limited exposure to the eight biggest technology stocks, including Apple Inc. and Inc. The eight stocks’ performance as a group accounted for nearly 70 per cent of the S&P 500′s return.

“This was a big miss” on stocks compared with the index, said Michel Nadeau, a former Caisse executive who now works for the Institute for Governance of Private and Public Organizations. “That’s unusual for them,” he told The Globe and Mail.

The Caisse operates under a dual mandate to generate returns and contribute to Quebec’s economic development, and Mr. Emond has found himself on the defensive since his appointment over several key Caisse investments, notably the company’s US$170-million writeoff of its stake in Cirque du Soleil. He’s also come under fire for the Caisse’s shareholding in U.S.-based Allied Universal Security Services LLC, which looks set to take over British rival G4S PLC after Montreal-based GardaWorld Corp. bowed out of an auction for the company this week.

The fate of holiday travel provider Transat AT Inc. is another file in which the Caisse is involved as a major shareholder. Air Canada decided earlier this month not to extend a Feb. 15 deadline the companies had set to complete its takeover of Transat, throwing the $190-million deal into jeopardy as the parties wait for approval from European regulators.

The Caisse voted in favour of Air Canada’s $5 a share offer because it was the only one on the table, Mr. Emond said. Transat’s board should examine other options and “prepare a Plan B” in the event Air Canada ends the agreement, he told reporters.

“Given its precarious financial situation, time is working against Transat,” Mr. Emond said. “It’s always preferable to have more than one scenario being studied.”

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