BusinessQuebec pension fund manager Caisse loses $33.6-billion in first half of 2022

Quebec pension fund manager Caisse loses $33.6-billion in first half of 2022

The roiling world markets have taken their toll on Caisse de dépôt et placement du Québec, as the pension giant lost $33.6-billion in the first six months of 2022 – including a controversial US$150-million wipeout in a major cryptocurrency investment.

The Caisse’s 7.9-per-cent loss was better than the 10.5-per-cent loss in its benchmark – a portfolio of similar assets it uses to measure its performance. The performance, however, caused the Caisse to fall from nearly $419.8-billion in assets at Dec. 31, 2021, closing its books June 30 with $392-billion in its portfolio.

Charles Emond, chief executive officer of the Caisse, said Wednesday that the pension fund would completely write off its US$150-million investment in Celsius Network Ltd., which filed for bankruptcy in July. It was one of a number of cryptocurrency companies that imploded in a sector-wide reversal.

The Caisse, which bought in as part of a US$400-million funding round that valued the company at about US$3-billion late last year. Mr. Emond said Wednesday that the Caisse’s investment in crypto has noo proved to be premature.

The Celsius flameout was the gist of most of the questions Mr. Emond faced Wednesday as he met the press to discuss the first-half results.

The Caisse said the first half of the year was “the worst six-month period of the last 50 years for stock and bond markets,” with the bond markets turning in their worst performance since the 1920s. Royal Bank of Canada’s RBC I&TS All Plan Universe saw defined benefit pension plan assets – as measured by a typical mix of publicly held stocks and bonds – shrink 14.7 per cent over that period.

“We’re never pleased with a negative return, but the execution has allowed us to do better than the markets,” Mr. Emond said Wednesday in French, according to a translation provided by the Caisse. He said the Caisse’s outperformance of its benchmark by shifting strategies, and then executing on them, during the past two years.

Over five and 10 years, annualized returns were 6.1 per cent and 8.3 per cent respectively, also outpacing benchmark portfolio returns of 5.3 per cent and 7.3 per cent, respectively.

The Caisse is the second of three major Canadian pension plans with Dec. 31 fiscal years expected to report half-year returns in 2022; Monday, Ontario Teachers’ Pension Plan reported a 1.2-per-cent return for the six months ended June 30.

Teachers has a little less than half of its assets in equities and fixed income, with roughly 20 per cent of its portfolio in what it calls “inflation sensitive” assets, designed to perform better in inflationary environments. By contrast, the Caisse had 75 per cent of its assets in equities and fixed income at June 30.

“The mix of factors we faced had not been witnessed in several decades: spiking inflation that triggered rapid and sharp interest rate hikes, rare simultaneous corrections in both stock and bond markets, fears of an economic downturn and the war in Ukraine with its many collateral effects,” Mr. Emond said in a statement accompanying the results.

Over six months, the Caisse posted a 13.1-per-cent loss in fixed income, compared to a 15.1-per-cent loss for its benchmark portfolio.

Real assets, a class that includes the Real Estate and Infrastructure portfolios, generated a 7.9-per-cent six-month return, demonstrating their diversifying role which contributes to limiting inflation’s impact on the total portfolio. The asset class’s return was significantly higher than its benchmark portfolio’s return of 2.4 per cent.

The real estate portfolio recorded a 10.2-per-cent return in the first six months compared with 11.4 per cent for its benchmark portfolio. The Caisse has been repositioning real estate after a heavy weighting in shopping centres drove it to losses in that portfolio in 2019 and 2020. The weighting of real estate is now the smallest sector in the portfolio, at 12 per cent, versus 22 per cent, the largest sector in the portfolio in January 2020.

The infrastructure portfolio generated a 5.8-per-cent return over six months, beating its benchmark portfolio’s 5.5-per-cent loss.

The equities asset class, which includes the equity markets and private equity portfolios, generated a six-month loss of 10.6 per cent, above its benchmark portfolio’s 11.9 per cent loss.

The equity markets portfolio recorded a six-month loss of 16.0 per cent, above its benchmark portfolio’s 17.2 per cent loss.

The private equity portfolio’s loss was 2.4 per cent, above the 4.1 per cent loss of its benchmark portfolio.

The Ontario Municipal Employees Retirement System (OMERS) is expected to release its results this week. Also, Alberta Investment Management Corp. now releases quarterly results, one of only two members of the “Maple Eight” large pension managers to do so – Canada Pension Plan Investment Board being the other.

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