Quebec Fund Is Slammed by Bond Rout in Worst Year Since 2008

The historic bond market rout did not spare the Caisse de Depot et Placement du Quebec, causing the pension manager to post its worst annual results since the global financial crisis. 

Canada’s second-largest public fund lost 5.6% last year and saw net assets decline to C$402 billion ($297 billion). Its fixed-income holdings were shredded by the rapid rise in interest rates, falling almost 15%. 

Chief Executive Officer Charles Emond said the drop in the portfolio, during the most difficult year for bonds in decades, is temporary. “Holding our bonds to maturity will allow us to automatically recover these unrealized losses,” he said at a news conference. “Until then, I want to emphasize that we are enjoying a very high current yield that is now over 6% or 7% per year.”

Public stocks were down 11.3% — outperforming the S&P 500 — while private equity was up 2.8%. CDPQ did not benefit from the surge in energy stocks as it exited from oil producers in 2021. The fund reduced its exposure to the technology sector and increased its holdings in more defensive segments such as insurance, pharmaceuticals and telecommunications.

“It was a very challenging environment for investors,” said Emond. The Caisse’s total return was its worst since 2008, but it outperformed a benchmark based on its asset mix that was down 8.3%.

The financial results would have been grimmer if not for CDPQ’s holdings of industrial property, infrastructure and private equity, all of which saw gains. If the firm held a traditional portfolio of 60% stocks and 40% bonds, assets would have plunged to C$367 billion, according to the firm.

Real estate was the brightest spot, with the Caisse posting low double-digit gains as it now focuses more on logistics and residential properties, and less on shopping centers and offices.

“We should see 2023 in the same kind of trend as 2022,” Emond said, citing the risk of an economic slowdown. “2023 should be seen as a transition year where we’ll find a balance. We’re positioned to deal with that.”

Bad Investments

writing off a $150 million private investment in bankrupt cryptocurrency lender Celsius Network LLC last summer, the Caisse filed a legal action against the company two weeks ago for false and misleading statements, Emond told reporters. The executive who led the investment, Alexandre Synnett, left the pension fund at the same time.

“We deviated from our venture capital strategy and made the necessary corrections,” the CDPQ head explained. The fund doesn’t plan to make further investments in crypto, he said.

The Caisse also stumbled in 2022 with its majority stake in India’s Azure Power Global Ltd. The renewable-energy firm has lost about two-thirds of its value since late August, when the new CEO stepped down and the company disclosed a whistleblower complaint about possible “manipulation of project data and information by certain employees.” 

Rating agencies have downgraded the outlook for Azure’s debt, and the company still hasn’t filed an annual report for the fiscal year that ended last March. The Caisse holds a 56% interest in the company, now worth about $130 million.

“For us, we will not compromise on the governance or ethics of this company,” Emond said, adding that CDPQ is awaiting the conclusions of an investigation. “This story is not over. It is too early to talk about losses. Looking to the future, all the options are on the table.”