Caisse posts first-half return of -2.3%, writes down value of Cirque stake
COVID-19 is putting a dent in the returns of Quebec’s biggest institutional investor.
The Caisse de dépôt et placement du Québec posted a negative 2.3-per-cent return in the first half of 2020, weighed down by setbacks in real estate and equities. The performance trailed the 0.8-per-cent return of the Caisse’s benchmark portfolio, according to a statement issued Friday. Over 10 years, the pension manager’s annualized 8.7-per-cent return still exceeds the needs of depositors.
Two main reasons explain the first-half underperformance: a major exposure to shopping centres, whose valuations have come under pressure in recent years, and the Caisse’s decision to steer clear of certain “big tech” stocks. Quebec’s public pension manager also wrote off the value of its entire Us$170-million stake in Montreal-based entertainment behemoth Cirque du Soleil, which filed for creditor protection this year.
Collectively, the five largest U.S. technology stocks, known as GAFAM — Google, Apple, Facebook, Amazon and Microsoft — returned 31.4 per cent in the first half, far outperforming other global stock market index members.
“There is no crisis at the Caisse, unlike what happened in 2008,” new CEO Charles Emond said Friday on a conference call with reporters. “We have all the liquidity we need and plenty of room to manoeuvre. The liquidity we have is sufficient to meet the needs of our depositors, to help Quebec companies and to invest in an agile and opportunistic way to create returns.”
Net assets shrank to $333 billion as of June 30 from $340.1 billion at the end of 2019, the Caisse said.
Real estate fared worst among the Caisse’s main asset classes, posting a negative 11.7-per-cent return. Equities, a category that includes publicly traded stocks as well as private equity, returned negative five per cent, while infrastructure assets such as airports returned negative one per cent. Fixed income was the lone bright spot, returning 4.1 per cent.
Rich valuations are the reason the Caisse hasn’t invested in any of the GAFAM stocks, Emond said, stressing that the organization entered the pandemic in a “defensive” position. However, the Caisse is looking to deploy additional sums in technology companies, and has already made several tech investments through its private-equity arm, the CEO said.
“We have to make our criteria evolve, review our way of doing business,” Emond said. “The economy is getting increasingly digital. I’m not telling you that we are going to buy GAFAM stocks tomorrow morning at these valuations, but it’s important to expose ourselves to this sector, which is going to play a bigger role in the economy.”
Private-equity returns took a hit as the Caisse wrote down the value of its Cirque du Soleil investment to zero. The Cirque filed to restructure under the Companies’ Creditors Arrangement Act in June after cancelling all shows due to the pandemic. “This is a company that’s completely closed, and will remain that way for a prolonged period,” Emond said. “When we took a hard look at the books, it seemed evident that the entire sum should be erased from our books.”
Depressed valuations at Ivanhoé Cambridge, the Caisse’s property arm, “reflect the difficulties with shopping centres, which are heightened by the COVID -19 crisis,” the pension manager said.