Caisse de dépôt et placement du Québec earned 7.2 per cent on its investments last year, falling just short of its internal benchmark as commercial real estate values took a beating and a stalled private equity market weighed on the pension fund manager’s results.
The Montreal-based Caisse said volatility in bond markets and a stock market driven by the performance of the largest technology companies shaped its investment returns. Stocks and bonds propped up its performance, producing returns of 17.7 per cent and 8.1 per cent, respectively.
But its portfolios of privately-owned assets had widely varying results as high interest rates had a major impact. Infrastructure holdings, which often have contracted returns that rise in step with inflation, did well, gaining 9.6 per cent and beating an internal benchmark of 0.3 per cent by a wide margin.
By contrast, the Caisse could not escape the pressure that has battered commercial real estate valuations, with real estate investments producing a 6.2-per-cent loss, against a benchmark loss of 10 per cent. The pension fund manager protected itself from steeper losses by selling off some of its office and retail properties in recent years, and investing more heavily in industrial and logistics properties that have proven more resilient.
In January, the Caisse announced a restructuring of its real estate subsidiaries to bring them in-house, and the forthcoming departure of Ivanhoé Cambridge CEO Nathalie Palladitcheff in April. The changes are expected to save the Caisse $100-million annually and streamline decision-making.
The Caisse’s private equity investments also struggled last year, gaining 1 per cent for the year and falling far short of the 10.5-per-cent benchmark gain against which the fund measures itself. Private equity dealmaking slowed to a trickle last year as higher financing costs and uncertainty about company valuations largely froze the market.
Chief executive officer Charles Emond said the Caisse’s struggles are confined to about one fifth of its portfolio, while the remaining 80 per cent is comprised of more healthy holdings with rising profits. And he noted that private equity has been the best-performing asset class for the Caisse in recent years, delivering returns of about 20 per cent annually over the previous three-year span.
“With higher rates like we have right now, the relative attractiveness of each asset class amongst one another changes completely,” Mr. Emond said at a press conference on Thursday.
In simple turns, the Caisse’s gains were a welcome turnaround after a dismal 2022, when the fund manager lost 5.6 per cent and wiped $18-billion from its assets. In 2023, the Caisse’s total assets increased $32-billion to $434-billion. But it narrowly missed its internal benchmark of a 7.3-per-cent return for it portfolios overall.
In 2024, the Mr. Emond predicts continuing turbulence in markets, with lingering uncertainty about when central banks will start to reduce interest rates and widespread geopolitical uncertainty. But he said that the increasing predictability for the path of rates, combined with the prospect for rate cuts, could boost performance in some areas.
“Faced with this context, our portfolio performed well,” Mr. Emond said in a prepared statement. “We may reach a crossroads in the year ahead, with many central banks likely to pivot, but the scope and sequence remain unknown.”
Over a 10-year span, the Caisse has earned a 7.4-per-cent return, beating its internal benchmark of 6.5 per cent. The pension fund manager said that equates to $28.4-billion of added value from its investments, when compared to a reference portfolio.
The Caisse also boosted its assets in Quebec by $10-billion to $88-billion, as part of a plan to increase its exposure to the province to $100-billion by 2026. The Caisse has a dual mandate to pursue investment returns for plan members and contribute to the economic prosperity of the province, unlike some other large pension funds that focus solely on investment gains.