With a return of 7.2% in 2023, slightly below that of his reference portfolio (7.3%), the big boss of the Caisse de dépôt etplacement du Québec, Charles Emond, has nothing to worry about.
I don't want to minimize the complexity of managing such a huge portfolio of $434 billion in assets. But the fact is that this fund's performance of 7.2% is a far cry from the average return of 12.1% achieved by diversified pension fund managers in 2023, according to the “Univers de Performance of Investment Funds of Pension Fund”. Managers”. from the company TELUS Santé.
With a return of 7.2%, the Caisse managers would be at the bottom of the field. It was the poor performance of its private sector and buildings investments that hurt the fund in 2023.
Nevertheless, Charles Emond is satisfied with his return of 7.2%. “2023 was marked by high volatility in bond markets and a historic concentration of gains in a handful of U.S. technology stocks that boosted major stock indexes. Against this backdrop, our overall portfolio has performed well and our depositors’ plans remain in strong financial shape.”
THE FAMOUS ADDED VALUE
As in the first paragraph of the Caisse press release, the head of the Caisse specifically emphasized the so-called “added value” that his team of portfolio managers reported by outperforming its benchmark indices of 5 and 10 years!
“Over five years, the annual return is 6.4%, exceeding the benchmark portfolio’s 5.9%, representing nearly $12 billion in added value. Over 10 years, the annual return is 7.4%, also above the reference portfolio of 6.5%, and generates more than $28 billion in added value.”
- Listen to the economy part with Michel Girard above QUB :
While the Caisse's 5-year annualized return of 6.4% is respectable, it's also not much to drink compared to the average return of 7.72% for the diversified funds we report in the Telus Health study. The Caisse would be in the 4th quartile of diversified funds.
Does Caisse compare better to the 10-year average return of all diversified fund managers listed by TELUS Health? Answer: Yes. Its annual return of 7.4% was 3/10 points higher than the average return (7.12%) of diversified funds. Well done!
During this ten-year period, former CEO Michael Sabia has six (from 2014 to 2019) and Charles Emond four (from 2020 to 2023) to his credit.
BEFORE A SIMPLE PORTFOLIO
The Caisse's team of portfolio managers may be highly qualified, but you should know that if an investor had simply invested their savings in a simply diversified portfolio of three index funds that you can buy on the stock market, they would have outperformed them in 2023, namely:
-35% of savings in iShares XBB bonds (FTSE Canada universe);
-32.5% of savings in iShares XIC Canadian stocks (S&P/TSX);
-32.5% of savings in iShares XWD for Global Equities (MSCI World).
According to the firm Aubin Actuaire Conseil, such a standard portfolio with these three indices achieved a return of 12.8% in 2023, i.e. 5.6 points more than the fund. Over 5 years, the annual return is 8%, even 1.6 points more. And over the 10-year period, the annual return reached 6.9%, slightly less (-5/10 points) than the fund.
VARIABLE YIELD
The Caisse's overall portfolio returns represent the weighted average of the funds the Caisse manages on behalf of its 48 depositors, whose investment strategies are “adapted to each individual's risk tolerance and investment policy.”
The Caisse says: “In 2023, the difference between the returns of the eight largest CDPQ depositors is quite large, ranging from 6.3% to 9.3% over one year.” Over longer periods, the annualized returns of their funds fluctuate over five years between 4.9% and 7.3% and over ten years between 6.2% and 8.3%.
Among the depositors that have historically done well is the Quebec Pension Plan (QPP), whose assets alone exceed 110 billion. In 2023, the QPP will have a 1-year return of 7.2%; an annual return of 7.3% over 5 years and 8.3% over 10 years.
To compare apples to apples, know that the QPP's federal counterpart, the CPP, has an annual return of 7.7% over 5 years and 9.3% over 10 years. The CPP's net assets are a staggering $591 billion and are managed by the Canada Pension Plan Investment Board (CPP Investments).
THE QUESTION OF PREMIUMS
How much will the bonuses be paid to Charles Emond and his senior executives this year? Even if the Caisse has not declared any “added value” in 2023, members of the management board should again be able to benefit from attractive bonuses, as their calculation takes performance and “added value” over 5 years into account.
Don't worry about them! Last year, when the Caisse posted a loss of 5.64%, the six senior executives shared a hefty $11 million in bonuses, including $3.6 million for Charles Emond.