CDPQ Reports 4.2% Return for 1H 2023 | Chief Investment Officer

Canada’s second-largest pension fund, Caisse de dépôt et placement du Québec, reported a 4.2% investment return for the first half of the year, just beating its benchmark index, which earned 4.1%. The fund’s asset value rose to C$424.2 billion ($313 billion) as of June 30.

The Québecois pension fund reported five- and 10-year annualized returns of 6.0% and 7.9%, respectively, ahead of its benchmark index’s returns of 5.0% and 7.0%, respectively, over the same time periods. According to CDPQ, the outperformance during the past five years translates to more than C$18 billion of added value, and the outperformance over the past 10 years represents almost C$30 billion of added value.

“Over the past three years, we have evolved our portfolio to continue to increase our ability to deal with market volatility,” CDPQ President and CEO Charles Emond said in a release. “In this context, we have generated returns that allow us to ensure the financial health of our depositors’ plans.”

CDPQ, which manages the funds of 48 depositors, announced that the returns of its eight largest depositors as of the end of June were between 3.8% and 5.2% over the first six months of the year. Over five years, their annualized returns vary between 4.4% and 6.8%, and over 10 years, the returns range from 6.5% to 8.9%.

Equities were the top-performing asset class for CDPQ during the first six months of 2023, surging 10.6%, just below its benchmark index’s 10.7% return. Over five years, the annualized return for equities was 7.1%, compared with 7.5% for its benchmark index. The pension fund blamed the underperformance on the portfolio’s more limited exposure to major technology stocks at the start of the five-year period. However, according to CDPQ, that gap has gradually diminished over the past three years after it repositioned its portfolio.

The pension fund’s real assets returned 4.7% and easily topped their benchmark index, which lost 2.1% during the same time. Over five years, CDPQ’s real assets recorded an annualized return of 9.6%, well above the benchmark index’s 5.7% return over the same time.

According to the pension fund, its repositioning in real estate mitigated the effect of the rise in rates, as its real estate assets lost only 1.5% during the first half, compared with its benchmark index’s loss of 4.3%. However, over five years, the annualized return of 1.0% is well off its index’s return of 3.1%, which the pension fund attributed to the weak performance of the Canadian shopping center sector.

The pension fund’s fixed-income investments were lifted by rising interest rates as bond markets rallied during the first half of the year following a weak 2022, earning 3.9% and beating its benchmark index’s 3.2% return. According to the pension fund, fixed income was also aided by credit activities, in particular the performance of emerging country debt and credit to companies.

Over the past five years, CDPQ’s fixed-income investments recorded an annualized return of just 1.1% due to the significant monetary tightening of central banks to control rampant inflation. However, this still outperformed its benchmark index, which returned 0% during the same time period.

“Investors are faced with several contradictory signals, such as the direction of inflation, interest rates, employment or markets,” Emond said. “This challenging environment invites us to remain vigilant, and reminds us more than ever of the importance of diversifying our portfolio and our long-term approach.”

Of the pension fund’s C$424.2 billion in assets, C$191.8 billion was in equities, C$126.7 billion was in fixed income and C$104.3 billion was in real assets.