Quebec’s Caisse Anticipates Weak Global Growth, Explores UK Opportunities – Reuters

By Matt Scuffham

TORONTO (Reuters) – Caisse de dépôt et placement du Québec, Canada’s second-largest public pension fund, has issued a warning about weak global growth in the coming years after market volatility resulted in a significant decline in investment returns during the first half of the year.

The Caisse, which manages pension plans for the predominantly French-speaking province of Quebec, reported on Friday that its average return dropped to 2 percent, down from 5.9 percent in the same period last year. Despite this decline, the performance still exceeded the benchmark portfolio return of 1.3 percent that the fund uses for comparison. Additionally, net assets grew to C$255 billion (approximately $197 billion) at the end of June, an increase from C$248 billion at the close of 2015.

Chief Executive Michael Sabia highlighted that the market environment has changed dramatically over the past year, citing global economic uncertainty as a driver of increased volatility in stock and currency markets. He stated, "Greater political instability in several parts of the world has added to the fundamental issues – economic rebalancing in China, lower corporate profits in the United States, insufficient reforms in Europe – and points to weak global growth for the years ahead."

During a conference call, Sabia expressed concerns about the potential repercussions of Britain’s decision to leave the European Union on the rest of Europe. However, he also noted that the situation could create opportunities if valuations decline. "We’ll continue to look at this situation as presenting at least as many opportunities as it does challenges. We’re going to keep a close eye on investment opportunities both in the UK and potentially in Europe," he remarked.

Recently, the Canada Pension Plan Investment Board also warned of ongoing uncertainty stemming from the UK’s decision, which has impacted investment gains in the last quarter.

Since Sabia’s appointment in 2009, the Caisse has sought to enhance returns by allocating a larger portion of its portfolio to assets such as infrastructure and real estate, as alternatives to equities and low-yield government bonds. The fund ranks among the world’s top ten largest investors in infrastructure and real estate; however, equities and bonds still compose the majority of its investment portfolio.

During the reporting period, fixed-income investments yielded a return of 3.8 percent, while real estate and infrastructure investments produced a 2.5 percent return. The fund’s equity investments generated a modest return of 1.4 percent.