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The Caisse de dépôt et placement du Québec building is seen in Montreal on Feb. 26, 2014.CHRISTINNE MUSCHI/Reuters

The head of Quebec's giant pension fund manager is warning that headwinds are starting to form that will slow investment returns in the global economy in the coming months.

Michael Sabia, chief executive officer of the Caisse de dépôt et placement du Québec, said Friday numerous factors are confronting the markets – including mounting geopolitical risks and lagging global growth outside of the U.S. market – that will make it difficult for investors to earn the same returns they have seen in recent years.

He said he would "like very much" if the Caisse's returns in the second half of 2014 could duplicate its 6.7-per-cent investment return for the first six months, when total assets grew to $214.7-billion from $200.1-billion.

"But I don't think that will happen," Mr. Sabia told reporters on a conference call. "The global investment environment is becoming more demanding." A key challenge, he said, is that the U.S. economy is virtually the only large engine powering economic growth because of China's slowing growth rates and persistent concerns that Europe is "extremely fragile."

"In China and emerging markets, we're not suggesting there's a crisis and things are going to become unstuck, but their capacity to motor the global economy forward is not what it used to be a little while ago," he said.

"And hence with a single motor working in the global economy – that being the United States – we think there is a lot of fragility there."

Mr. Sabia also said he agrees with a comment in July by former U.S. secretary of state Madeleine Albright about the global geopolitical position when she bluntly concluded "the world is a mess."

He said upheaval in  Ukraine, Iraq, Gaza and Syria add "a further weight and a further headwind for the global economic growth." He noted the Caisse has no investments in Russia – "as close to the mathematical concept of zero as you can get."

Mr. Sabia also warned the recent pace of growth in global stock markets cannot continue indefinitely. He said that historically, the average bull market lasts for 45 months, but global markets have now expanded for 66 months.

"There are a lot of reasons why you might expect this one to be longer than the average of 45, but at some point this is going to slow down, and we think we're seeing signs of that now."

Public equity market returns are likely to be in the range of 5 per cent to 7 per cent annually over the next four to five years based on current forecasts, Mr. Sabia said, which is "a far cry from where we've been."

It won't help, he added, that the U.S. Federal Reserve is in "unknown territory" as it tries to plot a strategy to withdraw stimulus from the economy and figure out how to begin raising interest rates.

The result, he predicted, is likely to be either Japan's experience where interest rates remained extremely low for a prolonged period, or a scenario where interest rates inch up extremely slowly.

"In either case, it's hard for us to see how that's something that contributes positively to the investment environment," he said.

Given low interest rates and volatility in public equity markets, Mr. Sabia said the Caisse is increasing its emphasis on seeking growth in private investments and in emerging markets with potentially higher growth rates.

He said the fund manager is "very focused" on finding investments in Mexico, which he called "a very interesting country at a very interesting time in its history."

He also said there are good opportunities in certain sectors in India, and said the Caisse is also interested in investing in Australia because it offers a "surrogate" way of gaining exposure to opportunities in Asia.

The pension fund has also invested $25-billion in a portfolio of global equities focused on major companies positioned for growth in emerging markets, including Procter & Gamble Inc., Unilever Group and Nestlé SA, he said.

In the first half of the year, the Caisse reported equities climbed by 8.8 per cent, while fixed-income investments earned 4.7 per cent and inflation-sensitive investments such real estate and infrastructure earned 3.5 per cent.

The Caisse now has 48 per cent of its holdings in public and private equities, while fixed-income holdings are at 36 per cent and inflation-sensitive assets account for 16 per cent of the portfolio.

Also Friday, the Caisse announced it has appointed Christian Dubé as executive vice-president for Quebec, a newly created role dedicated exclusively to overseeing the fund's Quebec investment holdings. Mr. Dubé, a former forest products industry executive, was elected to Quebec's legislature in 2012 and served as finance spokesman for the Coalition Avenir Québec party.