Caisse bounces back in second half, earning 7.7% in 2020 despite huge real-estate losses
A second-half comeback allowed Quebec's biggest institutional investor to finish the year in the black — while falling short of its own targets.
Following a negative first-half return of 2.3 per cent, the Caisse de dépôt et placement du Québec said Thursday it returned 7.7 per cent on average for all of 2020. Net investment income was $24.8 billion, lifting net assets to $365.5 billion at year end.
Equities accounted for the bulk of CDPQ's 2020 performance, generating investment income of $20 billion — a 12.4-per-cent return. Fixed income contributed $8.7 billion, for a return of nine per cent, while socalled “real” assets, such as malls and office towers, produced an investment loss of $5 billon, or seven per cent. The loss in real estate was a whopping 15.6 per cent.
The results trail the 9.2-per-cent average return of Canadian defined benefit pension plans, according to a January survey released by RBC Investor & Treasury Services. Returns also trailed CDPQ's own benchmark by 1.5 per cent — a situation that the pension-fund manager blamed on the struggles in real estate.
COVID-19 created “an unprecedented crisis. Everything shut down at once,” CDPQ chief executive Charles Emond told reporters Thursday in Montreal. “We're very happy with our resilience. I do not wish to see crises like this, but when they happen, it really lets us see what is solid, and what needs to be improved.”
Real estate was the biggest trouble spot for the Caisse in 2020, generating a net investment loss of $6.4 billion. Property valuations crumbled across the world as COVID -19 emptied downtowns and forced malls to close for extended periods.
Though CDPQ's Ivanhoé Cambridge property unit managed to cut its overall exposure to shopping centres, asset sales have been slow to materialize amid a dearth of liquidity in the market, CEO Nathalie Palladitcheff told reporters. Only one mall was sold, on Vancouver Island.
Ivanhoé Cambridge said last February it wanted to cut its exposure to Canadian malls and would look to sell about eight shopping centres by 2023, now that shoppers are increasingly turning to e-commerce at the expense of brick-and-mortar stores.
Malls now account for less than 20 per cent of Ivanhoé Cambridge's $60-billion portfolio, including debt, Palladitcheff said.
Ivanhoé Cambridge is still aiming to sell some of its 24 remaining shopping centres, though this process will likely extend until 2024, the CEO added. Two unidentified properties are in the process of being sold, Palladitcheff said.“The st rategy has not changed,” she said.
Ivanhoé Cambridge concluded more than 70 real-estate deals last year, including $2.8 billion of asset sales and $5.9 billion in purchases and modernizations. Most of the acquisitions focused on logistics and industrial buildings.
“2021 will certainly be complicated, but we have in our portfolio sources of durable returns for the future,” Palladitcheff said, citing Ivanhoé Cambridge's $10-billion logistics portfolio and its collection of office buildings for the life-sciences industry.
COVID-19, which brought air travel to a virtual standstill, also hurt returns in CDPQ's $32-billion infrastructure portfolio. Though infrastructure climbed 5.1 per cent in 2020, airports trimmed the return figure by three percentage points, Emond said.
CDPQ is nevertheless aiming to double the size of its infrastructure portfolio to about $60 billion over four years, he said.
While CDPQ is now a truly global investor, it remains very active in its home market. Quebec assets stood at $68.3 billion at year end, including $50 billion in the private sector.
At the start of the pandemic, CDPQ set aside $4 billion to help Quebec companies weather the storm.
About half of the amount has already been invested, or is in the process of being allocated, CDPQ said Thursday.