How Canada Pension Plan looks to 'inflation-proof' its investments
Quebec’s $309 billion pension manager rode a rising stock market and private equity gains to a 5.6 per cent return in the first half of 2021, outperforming its benchmark.
Caisse de Depot et Placement du Quebec said the private equity portfolio, which gained 13.5 per cent 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 per cent, about 2 percentage points above its benchmark. That helped make up for losses in fixed income as rising interest rates depressed bond markets.
“In the first half of 2021, our teams continued to position the portfolios to navigate a new environment, especially in real estate and equity markets, where ongoing initiatives are already producing tangible results,” Chief Executive Officer Charles Emond said in a written statement. “During the period, we also increased our exposure to promising sectors, such as logistics and technology.”
Caisse, Canada’s second-largest pension manager, said the overall return was 1.2 points higher than its 4.4 per cent benchmark. Net assets were $390 billion as of June 30, compared with $365.5 billion at the end of last year.
Real assets, which include infrastructure and real estate, rose 4.1 per cent, beating its 0.4 per cent 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.
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 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 per cent, compared with 8.3 per cent for its benchmark portfolio.