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Caisse Delivers $4.1B Value Added in H1 2010
The Caisse de dépôt et placement du Québec, Canada's largest pension fund, reported its results for the first half of 2010:
The
Caisse de dépôt et placement du Québec announced today that the
weighted average return of the depositor funds for the first half of
2010 amounted to 2.33%, compared to -0.74% for its overall portfolio’s
benchmark index.
The Caisse
outperformed the markets by 307 basis points (3.07%), leading to $4.1
billion in value added compared with the benchmark index. The Caisse’s
net assets stood at $135.8 billion, as at June 30, 2010, compared to
$131.6 billion, as at December 31, 2009.
“The markets were
challenging and volatile in the first half of the year, with sharp
declines in global stock market indicators and significant concerns
about European and U.S economic outlooks," said Michael Sabia, Caisse
President and Chief Executive Officer.
“Despite this fact,
the Caisse navigated this unfavourable environment well. Our results
reflect the work of our asset managers during this period. We find it
particularly encouraging that we could produce $4.1 billion in value
added compared with the markets. This was largely due to the Caisse’s
range of measures to solidify its foundations, add rigor to every
activity and increase its flexibility.”
“In my opinion, this also indicates that our portfolios are more robust and stable than before," said Mr. Sabia.
“Despite
our many achievements during the first half of the year, we still have
much to do. Our goal is to provide consistent, long-term returns to
our depositors,” said Mr. Sabia. “This will continue to be a challenge,
since we expect markets to remain volatile for some time.”
KEY ACHIEVEMENTS
In
the first half of the year, the Caisse was very active, managing both
its portfolio and balance sheet. Here are some examples of its key
achievements:• New
depositor portfolio offer: The new specialized portfolio offer aims to
better meet the needs identified in consultation with depositors in
2009 (see attached information sheet).
- This
is a simplified, more flexible offer that makes it easier for
depositors to establish their investment policies and, in turn, better
meet their specific needs.• ABTN:
In the first half of the year, the Caisse conducted some hedging in
accordance with its risk management strategy, which substantially
reduced the ABTN portfolio’s attributable risk, by about 45%,
minimizing the effect of market movements.
• Underweight in Equity portfolios: In
addition, the Caisse implemented a proactive underweight strategy in
its Equity portfolios due to increased market risk, particularly
related to the European crisis.
• Reduced leverage:
The Caisse eliminated its private equity portfolio leverage and
continued its strategy of reducing it in its Real Estate portfolio:
- The
leverage ratio (total assets versus liabilities) continued to decline,
reaching 21%, as at June 30, 2010, compared to 23% (as at December 31,
2009) and 36% (as at December 31, 2008).- The consolidation of
our balance sheet continued with the completion of the $8 billion
financing program announced in fall 2009 and completed in June 2010.
This financing was used to repay short-term debt and better match
financing sources and financed real estate assets. This program did not
increase the Caisse’s total leverage.
• Cost control:
Consistent with its recent commitments, the Caisse took these measures
with the aim of controlling operating expenses and remaining in the
league of best-in-class managers. The institution is also on track to
achieve its 2010 objectives.RETURNS AS AT JUNE 30, 2010
“Given
a challenging market environment, the results of the first half of
2010 reflect the fundamental quality of our assets,” said Roland
Lescure, Executive Vice President and Chief Investment Officer of the
Caisse. "They are also the result of proactive asset allocation that takes the market environment into account.”
The four main factors behind the $4.1 billion in value added are the following:
1.
The excellent performance of the Private Equity portfolio (+14.7%
return), due primarily to operational improvements by many portfolio
companies, which increased their profits.
2. The superior
performance of the Caisse’s fixed income portfolios (+6.0% return),
mostly from corporate and real estate debt investments.
3. The
good performance of the Investments & Infrastructure portfolio
(+10.1% return), which benefited from the substantial gains of its
large portfolio investments.
4. A proactive underweight in Equity portfolios.
Furthermore,
the Equity Markets portfolios (with a -5.5% return) were negatively
affected by the repercussions of Europe’s public finance crisis, China
slowdown fears and U.S. economic uncertainty. New York’s S&P 500
dropped by 7.2% (in Canadian dollars) and Toronto’s S&P/TSX
Composite fell 2.6% in the first half of the year. In May 2010, the Dow
Jones Industrial also experienced its largest monthly decline since
1940.
Finally, the Real Estate portfolio posted a slightly
positive return during the period, benefiting from the gradual recovery
in sector fundamentals since July 2009. This recovery was more evident
in Canada and the U.K. Other markets experienced more nuanced
improvements. After a difficult period in 2009, shopping mall and
office building sector returns were positive in the first half of the
year. The hotel sector, however, continued to decline.
The table
below provides more information on the Caisse's overall performance
during the first half of 2010 according to the new specialized
portfolio offer’s asset classes:
"Since
we expect markets to remain turbulent, we will continue to monitor
developments very closely and will be ready to respond quickly whenever
it’s necessary,” added Mr. Lescure.
Anyway you
slice it, these results are very impressive. How impressive? Take a look
at the table below, taken from Brockhouse Cooper's Canadian Manager Universes for Q2 2010 (click on image to enlarge):
As
you can see, the median return of Canadian Balanced funds was -1.7%,
and the 25th percentile return was -0.8%. The Brockhouse Cooper balanced
Index (40% DEX Universe, 30% S&P/TSX, 15% S&P 500, 15% MSCI
EAFE) delivered -1.6% during the first half of 2010.
Moreover, as noted in this CTV article, the Caisse outperformed its peers:
A survey by RBC Dexia has estimated that the assets of
Canada's
pension fund managers fell by 1.4 per cent in the first six months of
2010 due to faltering global equity markets.
The Caisse delivered 2.33% in the first half of 2010, compared to
-0.74% for its overall portfolio’s benchmark index, outperforming its
benchmark by 307 basis points (3.07%). Admittedly, private equity
accounted for the bulk of the value added, but don't discount the value
added from fixed income, infrastructure and tactical asset allocation.
The
Caisse did take a negative 5.5% hit in its public equity markets
portfolio, primarily due to the repercussions of Europe’s crisis, China
slowdown fears, and US uncertainty, but public markets have stabilized
since Q2 2010.
How do these results compare to CPPIB's results?
The Canada Pension Plan Investment Board ended the FY 2011 first
quarter with a loss on invested assets of $1.7-billion, or 1.3%. But
these quarterly results do not take into account private markets which
are only valued at the end of their fiscal year (March 31st).
The
Caisse's fiscal year ends at the end of December and unlike other large
funds, they report the performance of their private market holdings
twice a year. As I stated before, the Caisse's benchmarks for private
assets, especially real estate, are the toughest benchmarks among the
large public pension funds.
You can read more on the Caisse's first half performance in the Globe & Mail, Digital Journal, the CBC, CTV, the National Post, and Bloomberg.
I continue to believe that the Caisse is on the right path.
There is still a lot more work that needs to be done but you got to give
Mr. Sabia and the senior managers at the Caisse the credit they
deserve. These are very difficult markets to navigate through, and they
are doing a great job, focusing on risk management, governance, and
being nimble and opportunistic on asset allocation decisions. Let's
hope they keep it up in the second half of the year.
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A few swallows does not a spring make....Let´s see how they handle the second half of the year.
Instead of Canadian Fund updates would you be willing to just shoot me in the head? Much quicker...
Good results but a short timeframe
Here's my guess on the Caisse results. They did ok until June then they gave back half of the year to date gains. Now it is August and they are losing more. The market will be up and down but it is headed lower overall so Caisse (Russel 2000 with 20% international,boring) is going to give back that 2.5% and end the year down. I look forward to your full year update in January....
Bruce,
You are right, especially if markets tank in the Fall. But if that happens, all major pension funds will report losses. Still, the Caisse has turned things around, keeping it simple, reducing leverage and stupid risks they took in the past.
Are these results independently audited? Especially the real estate? I am guessing not.
All results are independently verified, especially real estate. The Caisse is one of the largest real estate investors in the world. Also, the Caisse undergoes investment audits from an independent third party who works for the depositors.
As a Caisse customer (not by choice), I'm not rejoicing yet. We lost a SHITLOAD of money last year, more than anyone else. The president left (for Power Corp) and said it was not his fault.
Also, most young Quebecers are pessimistic because they all know they'll never see the money. Same for government workers pensions under 40 years old. We just "ignore" the long term problem and just live our lives on a day to day basis.
However, the job market is very good, just got 2 job offers even if I'm currently employed. I don't know anyone unemployed who is looking for a job. We don't feel any economic problem and housing not crazy like in Vancouver.
whats the big deal ? you win some.. you lose some. In the end you end up where you started. Maybe even worse off than where you started. thats the game these days.
bitchez