(Bloomberg) — Quebec’s $309 billion pension manager rode a rising stock market and private equity gains to a 5.6% return in the first half of 2021, outperforming its benchmark.
Caisse de Depot et Placement du Quebec said Wednesday that its private equity portfolio, which gained 13.5% in the six-moth period, was boosted by Caisse’s “growth-through-acquisition” strategies and by investments in insurance, technology and health care.
The public stock portfolio returned 11.4%, about 2 percentage points above its benchmark. That helped make up for losses in fixed income as rising interest rates depressed bond markets.
“When a recession ends, then recovery begins. And that is usually when the more generous returns are available in the stock markets,” Chief Executive Officer Charles Emond said Wednesday at a news conference.
On one hand, he sees the recovery slowing. On the other, he also sees monetary policies normalizing.
“The Federal Reserve and the Bank of Canada will be able to do what has already been done in certain other countries where they are starting to increase the interest rates. We’ll be going into a phase where quality companies will have the high end of the stick, and you’ll see that reflected in our recent changes in our portfolios,” Emond said.
Caisse, Canada’s second-largest pension manager, said the overall return was 1.2 points higher than its 4.4% benchmark. Net assets were C$390 billion ($309 billion) as of June 30, compared with C$365.5 billion at the end of last year.
Real assets, which include infrastructure and real estate, rose 4.1%, beating its 0.4% benchmark, mainly on the strength of new economy assets, such as logistics, renewable energy and telecommunications, Caisse said.
In 2020, exposure to malls and office buildings weighed on the firm’s performance. Its worst showing last year came from its real estate unit, Ivanhoe Cambridge, which has since accelerated a repositioning toward sectors such as industrial, technology and life sciences, as well as sustainable housing, the pension manager said.
Ivanhoe CEO Nathalie Palladitcheff said that the pension fund has sold shopping malls in British Columbia and Nova Scotia as part of its repositioning, but has refrained from accepting lower prices for its assets.
“We haven’t made any sacrifices. We had a plan, but we were not in a rush, we don’t want to do any stupid things,” Palladitcheff said.
The investment environment remains challenging “as the global economic recovery still varies widely and reflects both the uneven progress on vaccinating populations and controlling the pandemic in different regions,” Emond said.
“We’re also facing conditions marked by a lot of uncertainty, especially with concerns around inflation and geopolitical tensions. At the same time, abundant capital is still stimulating fierce competition for assets, while valuations are particularly high,” Emond said.
Caisse has been working to factor in the uneven post-pandemic recovery and political challenges globally.
“In infrastructure, the regulatory risk is one that we factor in significantly in where we invest, what you buy and where you buy it are two very important dimensions,” Emond said. “That’s why I probably prefer now to buy optic fiber on the ground, as opposed to buying airports where some of these assets are more sensitive.”
He went on: “In some countries you’ll see governments that in the current environment have become more inwardly focused.”
Caisse manages the pensions of retirees in Quebec, Canada’s second-most populous province, as well as various provincial insurance plans. Over 10 years, its annualized return was 8.8%, compared with 8.3% for its benchmark portfolio.
(Updates with executive remarks from news conference)
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