Caisse achieves positive results for 2019, but trails major benchmarks
Public equities lifts Quebec pension fund while real estate contributes to losses
Up, but not as much as the market.
The Caisse de dépôt et placement du Québec fell short of major benchmarks last year, posting a 10.4-per-cent return as real estate assets lost value.
Net investment income in 2019 was $31.1 billion, bolstering total assets to $340.1 billion, the Caisse said Thursday in a statement. The performance trails the 11.9-percent increase in the Caisse’s own benchmark index, and the 14-percent return for Canadian defined benefit pension plans calculated by RBC Financial Group.
This marks the last full year under longtime chief executive Michael Sabia, who left this year to become head of the University of Toronto’s Munk School of Global Affairs and Public Policy. Former banker Charles Emond, who joined the Caisse a year ago, succeeded Sabia at the helm.
“For us, the portfolio is delivering what we wanted,” Emond told reporters Thursday, pointing out that Caisse depositors require average annual returns of about six per cent. “What we look for is a stable performance from year to year. We want to be less vulnerable to the ups and downs of the markets. We’re not trying to follow the wave,” he said, calling stock markets “euphoric.”
Under Sabia, the Caisse pivoted toward a strategy that focuses on asset selection and diversification in a bid to better withstand market downturns. As part of this push, the Caisse has been boosting its exposure to global markets as well as credit and real-asset investments such as infrastructure.
Public equities lifted the Caisse’s 2019 performance, posting a 17.2-per-cent increase — and producing $17.7 billion of investment income — as global stock markets soared. The Caisse’s Canadian equity holdings advanced 20.5 per cent, while its “global quality” portfolio of large-capitalization stocks gained 18.2 per cent.
Real estate posted a negative return of 2.7 per cent, generating an investment loss of $1.1 billion. Falling valuations for Canadian shopping centres and residential real estate in New York — due in part to rent control increases in the U.S. financial hub — contributed to the underperformance, the Caisse said. It owns 25 malls across Canada.
Over five years, real estate has returned 7.2 per cent, short of the Caisse’s 8.8-per-cent benchmark.
Infrastructure advanced 7.1 per cent last year, trailing the 17.7-percent return of the Caisse’s own benchmark, which includes more than 200 securities of publicly traded companies. The Caisse says its infrastructure portfolio, which includes about 40 assets, targets lower risks and a more stable longterm performance.
Over five years, the Caisse said it generated overall net investment results of $18.6 billion for an annualized return of 4.3 per cent.
Emond, who took over Feb. 1, warned depositors Thursday to brace for rockier times in the years ahead. “We expect the next decade to be more challenging than the past one, during which all investors benefited from the longest bull market in history,” he said in a statement. “In the context of a growing gap between real economic performance and market performance, and multiple indicators prompting us to be cautious, it will be important for our strategy to continue evolving while we manage responsibly and with agility.”
Emond declined to say whether the Caisse plans to keep its stake in Bombardier Inc. now that the Montreal-based manufacturer has agreed to sell its train unit to France’s Alstom SA and focus exclusively on business aircraft. Private jets are traditionally much more cyclical than trains, which may result in a more volatile stock performance — exactly the opposite of what the Caisse is aiming for.
Once the deal closes, the Caisse will own about 18 per cent of Alstom — an investment that could be worth up to $4 billion. By contrast, its stake in Bombardier is now worth about $200 million, “which is fairly small overall,” Emond told reporters.
“People lose sight of the fact that following this transaction, the business jet enterprise still ranks Bombardier as one of the top five industrial groups in Canada,” the Caisse CEO said. “This is no small company. It’s a world leader.”
Bombardier has “a strong product” with the Global 7500 jet, “and they find themselves in a position to compete and rebound,” Emond added.
“Our conviction has been historically more on the rail side for several reasons, such as long-term trends and urbanization. From that perspective, we’re focused on our investment in Alstom, but I’m sure Bombardier’s management team find themselves, at least on a relative basis, in a better position than before.”
We expect the next decade to be more challenging than the past one, during which all investors benefited from the longest bull market.