Caisse de dépôt 2023 results | A very average score

It’s very average. And it is again Bombardier Transportation, in a way, which has weighed down the performance of the Caisse de dépôt et placement du Québec.

Is it good or bad, Mr. Vailles? Slice. It’s average, I tell you. Impressive in the overall stock market, but terrible in the private equity market.

This means that overall, the Fund’s contributors obtained a return of 7.2% on their funds in 2023, less than the Fund’s benchmark index of 7.3%, made up of the same categories. of assets. The gap is actually unfavorable by 0.17 percentage points, if we ignore roundings.

It’s average, because the depositors pay handsomely the managers and employees of the Fund so that they bring added value to their funds, so that they do better than someone who would place their money in funds negotiated in Exchange in the same types of assets as those of the Caisse.

Of course, we cannot judge the work of a portfolio manager by taking only one year of performance. Over five years, moreover, the Fund’s return reached an annual average of 6.4%, above the benchmark index of 5.9%.

This difference of 50 basis points translates into an added value of $11.7 billion over five years, bringing the Fund’s overall portfolio to $434 billion as of December 31, 2023. Even so…

It must be said that my own expectations – and those of the average journalist in the Business section – were higher this year. In the section’s annual prediction game, I entered 10.9% for the Caisse’s return in 2023, which is equivalent to the median of the returns of diversified mutual funds in the Aon survey.

Why did I put the median and not better? Because I told myself that the Caisse’s significant exposure to real estate – its real estate portfolio is now worth 45.6 billion – would pull the return down, but that was not really the case. The Caisse had a return of -6.2%, but the benchmark did worse, at -10%.

On average, the section’s journalists expected a return of 8.7%, knowing, among other things, that the Caisse had reported a return of 4.2% at mid-year and that the year 2023 had ended strongly .

In short, it is below our expectations and below the benchmark.

It was private placements that hurt the Fund, with a 1% return compared to 10.5% for the index. Charles Emond explained that management expected this kind of decline, after years of outperformance (14% over five years compared to 12.4% for the index).

He also affirmed that the index for private investments – half made up of stock market securities, which was rising sharply – had been difficult to beat this year, especially since the Caisse’s investments were devalued by the rise in bond rates. ‘interest…

Yes, good, but isn’t that the fate of all private placements, this impact of rates?

Alstom-Bombardier

I note, however, that one of the flagship investments in the Caisse’s private placement portfolio is the investment in Alstom, this transport equipment manufacturer of which the Caisse became the main shareholder, with 18% of the shares, when Alstom bought the Bombardier Transportation division in 2021.

Alstom lost half of its value on the stock market in 2023 (major investments on the stock market are considered private placements). For the Fund, this means that the value of its investment was deflated by CAN 1.1 billion, according to my estimate. Ayoye!

This loss is twice as large as the value addition of the entire private investment portfolio in 2023, of 1%, or 556 million. In short, the shadow of Bombardier still hangs over the Caisse’s results, three years after the Alstom-Bombardier Transport “merger”.

Charles Emond, who personally manages the file, affirms that the Fund plays its role. The company sells assets to reduce its debt and regain honorable liquidity (as was the case with Bombardier, remember). And he sees Alstom, “which is still gaining market share”, as a long-term strategic investment.

It’s average, then. At the same time, the Fund managed to beat the benchmark indices with its core stock portfolio, with a 17.7% return, compared to 17.4% for the index.

This is admirable, knowing that it is very difficult to beat the stock market indices, but in addition, the Caisse had underweighted its portfolio of shares of the seven large technology companies (Apple, Microsoft, Amazon, etc.), which literally disrupted the market.

Without these stocks, the S&P 500 would have returned 9.8% in 2023, rather than 23.2%. To beat the stock market indices, the Caisse had to do very well with this underweighted portfolio.

One thing is certain, in the four years that he has been CEO, Charles Emond has weathered unusual storms: pandemic, assault on the Capitol under Donald Trump, galloping inflation, boom in interest rates, war in Ukraine and the Gaza Strip, acceleration of climate change… Phew.

Hopefully the next five years will be calmer.