Caisse de Depot Posts 9.6% Return on Equity, Real Estate

Caisse de Depot et Placement du Quebec regained the top spot among Canadian pension-fund managers as it posted a 9.6 percent investment return last year with the help of gains in real estate, public and private equity.

The Caisse recorded C$14.9 billion ($14.5 billion) in investment income in 2012, and depositors made net contributions of C$2.3 billion, the Montreal-based fund manager said today in a statement. Net assets rose to C$176.2 billion as of Dec. 31, overtaking the C$172.6 billion managed by the Canada Pension Plan Investment Board.

The results beat the 9.4 percent median return of Canadian pension funds for 2012, based on a Jan. 29 report by Royal Bank of Canada’s RBC Investor Services unit. They also exceeded a 9.3 percent return for the Caisse’s benchmark portfolio.

“These results reflect the efforts we’ve made in recent years, but one thing is certain: we still have more work to do,” Chief Executive Officer Michael Sabia said at a press conference in Montreal today. “We manage the savings of Quebeckers, of generations of Quebeckers, so we have to have a perspective that’s 10 years, 20 years, 30 years.”

Income includes C$1.7 billion from a reversal of provisions on the Caisse’s portfolio of asset-backed term notes, the money manager said. The Caisse, which oversees pensions in the French-speaking province, wrote down the value of its asset-backed commercial paper holdings after the market for the securities seized up in August 2007.

Public and private equity powered gains in 2012, generating a combined C$8.8 billion in investment income, the Caisse said. Stock market investments returned 12 percent, compared with 13.6 percent for private equity, 11 percent for “inflation-sensitive” investments such as real estate and 3.9 percent for fixed income.

Real Estate

The Caisse had about 37 percent of its assets invested in publicly traded stocks and 36 percent in fixed income as of Dec. 31. Assets held within Quebec rose to C$47.1 billion at year-end from C$41.2 billion a year earlier.

Sabia said last month the Caisse wants to increase investments in assets such as real estate, infrastructure and private equity to reduce volatility in its returns. The fund manager plans to add C$10 billion to C$12 billion in what it calls less-liquid investments in the next two years, Sabia said at the time.

Real estate rose 12 percent in 2012, contributing to an 11.1 percent return for the Caisse’s C$25.5 billion “inflation-sensitive” portfolio. That portfolio also includes about C$6.3 billion in infrastructure assets such as airports, hospitals and pipelines, which generated a return of 8.7 percent last year.

Equities, the Caisse’s largest asset class with C$82.3 billion under management, returned 12.2 percent, the pension manager said. Canadian stocks, a C$22 billion portfolio, rose 6.6 percent, while the C$10.2 billion portfolio of U.S. stocks returned 14 percent. Emerging markets stocks topped all equity portfolios, returning 16 percent.

Canada’s benchmark Standard & Poor’s/TSX Composite Index returned 4 percent last year, trailing the performance of markets in every developed nation except Spain and Portugal.

Since Sabia led an overhaul of operations in July 2009, the Caisse has posted an annualized return of 11 percent, according to today’s statement. That exceeds the 9.2 percent return of the Caisse’s benchmark portfolio in the period.

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