Quebec’s Caisse Sees Challenges as World Teeters

Caisse de Depot et Placement du Quebec, Canada’s second-largest pension fund manager, sees plenty of reasons for concern that a faltering global economy will make investing even more challenging in the years ahead.

The concerns stem from the fragility of the European economy, muted growth in China and other emerging markets and political instability in several parts of the world, Chief Executive Officer Michael Sabia said.

“We have a cautious view about it and we think there are headwinds,” he said on a conference call today. “We’re trying to manage ourselves accordingly.”

Central banks around the globe have kept interest rates at historic lows in a bid to stoke economic growth, triggering a surge in mergers and acquisitions that is driving up valuations and making it more difficult for investors like the Caisse to find reasonably priced deals. About $1.9 trillion worth of deals have been announced this year, up 66 percent from a year earlier, data compiled by Bloomberg show.

Sabia expects interest rates either to remain very low for a long time or start to inch up.

“In either case, it’s hard for us to see how that is something that contributes positively to the investment environment,” he said.

In addition to the geo-political risks, equity markets may start to cool too. Investors are starting to look at 5 percent to 7 percent returns from stock markets over the next four to five years, he said.

“This is going to slow down and we think we’re seeing signs of that now,” Sabia said.

Fund Returns

The Caisse, based in Montreal, returned 6.7 percent for the first half of 2014, boosted by an economic recovery in the U.S. and rising Canadian equities, the fund manager said in a statement earlier today. That fell short of the 7.8 percent median return achieved by Canadian pension plans in the comparable period, according to a July 28 survey conducted by RBC Investor and Treasury Services.

Assets rose more than 15 percent to C$214.7 billion as of June 30, from $185.9 billion a year earlier.

The Caisse announced in June it would be expanding its reach by opening new offices in Washington, Mexico City and Singapore as it expands its reach in search of new opportunities.

Mexico and India are especially interesting from an investment perspective, Sabia said. The Caisse expects to name a new managing director for its Asian operations next week and is trying to do the same in Latin America.

‘Interesting Opportunities’

“While some emerging markets have slowed down and some are facing some pretty serious structural issues, others are in somewhat better shape and presenting interesting opportunities,” he said.

The Caisse oversees pensions for retirees in the French-speaking province of Quebec, with a dual mandate to maximize returns and foster economic growth.

To contact the reporter on this story: Scott Deveau in Toronto at sdeveau2@bloomberg.net

To contact the editors responsible for this story: Jacqueline Thorpe at jthorpe23@bloomberg.net; Mohammed Hadi at mhadi1@bloomberg.net Carlos Caminada, Chris Fournier

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