Caisse de dépôt et placement du Québec posted a gain of 4.2 per cent in the first half of 2023, a reversal from a 2022 loss that marked its first down year since the 2008 financial crisis.
The Quebec pension fund manager said the return on its benchmark – a portfolio of similar assets it uses to measure its performance – was 4.1 per cent for the first half of the year. The Caisse said bond returns and private assets contributed to its benchmark-beating performance, while its performance in equities lagged.
The Caisse reported $424-billion in assets as of June 30, up from $402-billion at the end of 2022. The money manager does not disclose the composition of its portfolio, such as how much money is invested in each asset class, at mid-year.
Last year represented a double-whammy for investors: Stock markets fell while rising interest rates also drove bond prices down. When Caisse chief executive Charles Émond commented on the 2022 results in February, he said geopolitical tensions and persistent volatility in capital markets augured another tough year.
On Wednesday, Mr. Émond said the Caisse adjusted its portfolio “to reinforce our capacity to withstand market volatility.”
The Caisse’s fixed-income portfolio returned 3.9 per cent, versus a benchmark of 3.2 per cent. The Caisse said corporate credit – where it lends directly to companies – and emerging country sovereign debt were drivers of the outperformance.
Real assets, which include things such as infrastructure and real estate, returned 1.8 per cent, versus a loss in the benchmark portfolio of 3.1 per cent.
Within the category, infrastructure recorded a 4.7-per-cent return versus a benchmark loss of 2.1 per cent. The Caisse said investments in renewable energy, telecommunications and transportation drove the gains.
The real estate portfolio lost 1.5 per cent, compared with a loss of 4.3 per cent for its benchmark. Ivanhoé Cambridge, its real estate subsidiary, was historically overweight in shopping centres, but a rebalancing of the portfolio has boosted current returns.
“This benchmark is more strongly impacted than we are by the office-building sector, so our portfolio has different favourable elements,” Nathalie Palladitcheff, CEO of Ivanhoé Cambridge, said, according to the Caisse’s translation of her remarks in French.
“We’ve been very active this year to reinforce logistics and residential, which represent respectively 27 and 28 per cent of our portfolio. And these two sectors benefit from a strong demand everywhere in the world.”
The equities portfolio – which includes both public and private companies – gained 6.4 per cent, below a benchmark return of 9.1 per cent.
Over six months, the public-equities portfolio – stocks listed on exchanges and available to individual investors – recorded a 10.6-per-cent return, in line with a benchmark of 10.7 per cent.
In a report accompanying its mid-year results, the Caisse bemoaned the “hyper-concentrated public markets” where only seven technology stocks are responsible for 80 per cent of the S&P 500′s gains so far in 2023. Over the past five years, the Caisse has had a negative impact from low exposure to certain of the tech giants but it has “carefully increased exposure” to them, the fund manager said.
The public-equities return “was generated without risking too much overweight in the U.S. and targeting companies notably in our portfolio of Quebec companies,” Vincent Delisle, the Caisse’s head of liquid markets said, according to the Caisse’s translation of his remarks in French.
The return on private-equity investments was 1.4 per cent, well below the benchmark of 7.2 per cent. Mr. Émond said the portfolio, while concentrated in “more resilient sectors” such as insurance, the health sector and the digital economy, was constrained by higher financing costs.
“It’s not a surprising slowdown – we had a return, I remind you, of 20 per cent on average per year for the last three years,” Mr. Émond said. “Companies are having their profits grow in the portfolio on average. But the increase in rates, its impact on finance costs, has had an impact on certain companies.”
In addition to investing money in the provincial pension plan, the Caisse manages the funds of a total of 48 depositors, adapting investment strategies to take into account their different risk tolerances and investment policies. The Caisse said its annualized five-year return as of June 30 is 6.0 per cent while its 10-year annualized return is 7.9 per cent.
The Caisse is one of three major Canadian pension plans with Dec. 31 fiscal years that reports half-year investment returns. On Tuesday, Ontario Teachers’ Pension Plan reported a 1.9-per-cent return in the first half of 2023, and on Wednesday, the Ontario Municipal Employees Retirement System reported a 3.1-per-cent gain for the period.
David Milstead