Strategies take into account key challenges of climate, digitization, and current world affairs
By Emily Holbrook
Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ) recently reported its best returns in more than a decade. Known as Canada’s second largest pension fund, CDPQ realized a record C$78 billion (US$61 billion) of total asset growth, reaching C$420 billion (US$328 billion) of assets under management.
CDPQ’s Strategy
In 2021, each of CDPQ’s portfolios delivered strong performances, producing nearly $49 billion in investment results. Infrastructure and private equity generated exceptional returns while equity markets leveraged the benefits of the portfolio’s evolution. CDPQ’s real estate repositioning yielded clear results and the fund successfully navigated a pronounced rate hike in fixed income.
Charles Emond
“This shows that our strategies are working and effectively taking into consideration today’s key challenges: the climate transition, the digitization of the economy, and ongoing changes on the international stage,” said Charles Emond, president and CEO of CDPQ. “During the year, we intensified our presence in Québec with the strongest ever increase in our assets, now reaching $78 billion. All our teams played a key role in supporting the growth of our Québec-based portfolio companies, here and abroad. Our market insights have served their business plans, allowing them to achieve their ambitions. I am proud of our teams, who work every day to build a competitive and sustainable Québec economy while generating returns for our depositors.”
Sectors Showing Success
A recent report from Global SWF noted that real estate and infrastructure were the biggest benchmark beaters for CDPQ. Emond said that, in 2021, the real estate portfolio generated a 12.4% return, a solid performance he attributes to strategic changes that were implemented two years ago, just before the start of the global COVID-19 pandemic.
“Investments in promising sectors such as logistics, residential, and life sciences were increased, and the portfolio’s exposure to shopping centers and traditional office buildings was decreased,” Emond said.
The fund’s infrastructure portfolio posted a 14.5% return for one year, its best in 10 years, compared with 11.4% for its benchmark index. Emond attributes this result to the strong performance of portfolio assets in the renewable energy and telecommunications sectors. Over five years, the infrastructure activities produced an annualized return of 9.6%, above the benchmark at 9.2%, a value add that is also attributable to the portfolio’s exposure to the wind and solar energy sectors.
“The telecommunications—as well as goods and passenger mobility sectors—were also central to our infrastructure investment activities and we look forward to continuing to grow this important portfolio across the globe,” Emond said.
Investment Challenges
But the returns for CDPQ did not come without challenges. The pension fund has also invested in what some in the institutional investment realm would view as non-traditional assets. Its subsidiary, CDPQ Infra, has poured money into a rapid transit network through greater Montreal. Known as Réseau express métropolitain (REM), the light rail project is slated to create one of the largest automated transit networks in the world. While most pension funds would invest in bonds relating to such projects, CDPQ was looking for something more profitable, therefore investing in the project directly. The project, while it may be a cash cow in the future, has so far been plagued with engineering, financial, and political disputes.
CDPQ is also not immune to more common challenges facing pension funds globally. “The conditions we face—including pandemic-induced imbalances, rising interest rates and growing inflation—significantly increase the complexity of the business environment for 2022,” said Emond. “Very disciplined execution of our strategy, rigorous investment selection and sound diversification will be essential to continue performing well in the coming years.”
CDPQ’s returns tell the story of a Canadian pension fund ahead of the curve. Emond has the confidence that it will remain that way for the foreseeable future. Only time will tell if the fund can continue to successfully navigate global challenges and those specific to CDPQ.
Emily Holbrook serves as owner and head content creator at Red Label Writing LLC, a content studio that collaborates primarily with the insurance and financial services sectors.
