Equities fuel 9.3% return for Quebec pension fund manager in 2017

Quebec’s Caisse de dépôt pension fund manager has released its financial results for the year ended Dec. 31, 2017. The annualized weighted average return on its clients’ funds is 9.3% for 2017, and 10.2% over a period of five years.

In 2017 net investment results were $24.6 billion. Net deposits totalled $3.2 billion.

Over five years, net assets totalled $298.5 billion, increasing by $122.3 billion, with net investment results of $109.7 billion and $12.6 billion in net deposits from clients.

Ready to pounce

The fragility of global markets caused by soaring stock prices has opened the door to a correction that Quebec’s Caisse de depot pension fund manager is ready to pounce on, CEO Michael Sabia said Wednesday.

“If a correction arrived to be honest with you, I would see that as a very significant opportunity,” he said during a news conference about its improved 2017 results.

Unlike the situation during the economic crisis of 2008-2009, the large institutional investor has the flexibility to move substantial capital between asset classes to benefit from a fall in stock prices, Sabia said.

Although economic growth is strong and largely synchronized around the world, he said markets are fragile, making them more susceptible to shocks from unexpected interest rate increases or a geopolitical crisis.

“Because of that fragility that we see in the markets today, we’re very focused on this fundamental principle of resilience so that we’re ready in the event that something does change in the markets,” he told reporters.

The U.S. faces the possibility of higher interest rates to curb inflation, he said, but urged the Canadian government to be “measured” in its response to lower U.S. corporate taxes or contentious trade disputes.

“I don’t think there’s an immediate need for significant reaction with respect to the Canadian tax system,” he said.

The federal budget is scheduled for Feb. 27 but Finance Minister Bill Morneau has said that the government has no plans to “act in an impulsive way” in response to tax cuts south of the border.

In response to questions from reporters, Sabia said the Caisse isn’t looking to invest in marijuana stocks or the Bitcoin, which he likened to lottery tickets.

Portfolio details

Equity returns were 13.6% in 2o17. “In 2017, La Caisse’s return reflects strong equity market performance, but does not fully capture the surge in multiples for tech companies and companies with an accelerated growth profile,” says the pension fund manager in a release. “Conversely, La Caisse’s portfolio should also provide greater resilience in volatile markets.”

Read: Here’s how portfolio managers are investing now

In the last five years, the manager almost doubled its exposure to global growth markets, including the U.S., Europe, Asia and Latin America.

Fixed income returns were 3.5% in 2017. Starting last year, La Caisse repositioned its fixed income in the face of low rates and modest bond yields: it increased credit exposure in higher-performing market segments, including corporate credit, sovereign credit and specialty finance. “This adjusted strategy delivered solid results in terms of both transactions and performance,” says la Caisse.

Read: Fixes for fixed income as rates rise

Returns for real assets were 8.7% in 2017, with the manager having more than $7.6 billion in private equity transactions completed in the year. Transactions included GE Water, a company well positioned to address concerns related to industrial waste water and its environmental impact, as well as med-tech company Sebia and engineering group Fives.

Read: High-net-worth firms to make more direct investments: report

For more details, including returns by asset class over five years, read La Caisse’s release, which has links to asset fact sheets.