The Caisse de dépôt’s infrastructure portfolio performed again well in 2023 thanks in particular to the sustained contribution of its assets in renewable and transition energies. It should therefore come as no surprise that the Caisse actively participates in financing several initiatives of Hydro-Québec’s Plan 2035, which will require investments of 155 to 185 billion.
Charles Emond, CEO of the Caisse, is very satisfied with the return of 9.6% generated by the infrastructure portfolio over the last year, a performance significantly higher than that of 0.3% recorded its reference index.
The Fund wants to continue to progress in this asset class which, according to the institution, offers protection against inflation while ensuring high current returns. And as the energy transition remains the major challenge of the coming decades, Mr. Emond believes that the Caisse will have to actively participate in it.
Could the manager of the Quebec pension plan join forces with Hydro-Québec to finance the construction of new hydroelectric dams, wind farms, solar farms or transmission lines (as the Caisse has just done in Brazil)?
The answer is an unequivocal yes.
We have not yet discussed it with Hydro, but if we are approached, it is an asset class that we like and we want to contribute to the decarbonization of Quebec.
Charles Emond, President and CEO of the Caisse de dépôt et placement du Québec
“There are many ways to play it. We can go there as a lender, we can invest in infrastructure such as wind farms or transmission lines, but it is certain that as a partner who is close to us and who is doing something good, it ticks all the boxes. cases,” confirms Charles Emond, in an interview he gave me on the sidelines of the publication of the annual results.
Hydro-Québec will have to go to international markets to find the financing necessary to achieve its multi-billion dollar ambitions, but the Caisse will be one of the partners in certain projects.
The CEO of the Caisse de dépôt appears largely satisfied with the latest results overall, despite the fact that it recorded disappointing performances in certain asset classes such as real estate and private placements.
Charles Emond believes that the investment strategy has made it possible to increase the resilience of certain portfolios to better cope with “aggressive” markets.
The stock market better than private placements
The Caisse’s stock market portfolio managers managed to produce a return of 17.7% in 2023, the best performance in the last 10 years, which even surpassed that of the benchmark index at 17.4%. A rare and surprising thing is that the Caisse produced better stock market returns than the very disappointing ones it obtained via its private placement portfolio.
“Our private equity portfolio has been hit by the rapid rise in interest rates. Our private holdings in Quebec did significantly better than the 1% of the entire category. Of the 32 billion in additional assets that the Caisse generated in 2023, 10 billion come from Quebec,” insists the CEO.
The Caisse’s stock market performance would not have been possible if the institution had retained the strategy it had at the start of the 2020s, “we would have been downgraded by the markets”, believes Charles Emond.
“We were missing some chips on the table. We did not have a growth mandate, we traded less, we applied systematic fundamental management. For three years, we have been able to better follow the markets, which are very aggressive,” he emphasizes.
The Caisse’s internal management team adopted a growth strategy by notably taking a stake in some of the “Magnificent Seven stocks” which were responsible for more than 60% of the appreciation of the S&P 500 index in 2023.
Is there a danger that these highly valued securities will become the first to suffer violently in the event of a recession and a stock market crash as some fear for 2024?
“We did not put all our eggs in one basket and several of these titles have become the equivalent of public utilities. If there is a recession, will people stop going online and using Google? We are not in Tesla, but in Nvidia,” explains Charles Emond.
By the way, Nvidia, the semiconductor manufacturer, broke a new Wall Street record on Thursday by recording a valuation of US 277 billion in one trading session, which represents three times the value of CN.
Nvidia eclipsed the previous record achieved by Meta on February 2 when the value of its stock appreciated by 196 billion.
We have a quality portfolio that has more velocity and is more resilient.
Charles Emond, President and CEO of the Caisse de dépôt et placement du Québec
A portfolio that will be able to resist the election of Donald Trump in the United States and Pierre Poilievre in Canada, two ardent promoters of excessive oil exploitation.
“History teaches us that the American economy performs beyond the president or whatever president is in office. It is certain that there will be challenges, irritants, but the energy transition is too important to let it go, we are all committed to it,” believes Charles Emond.
The CEO of the Caisse is counting more on the drop in interest rates which should begin in the second half of the year. “If we could relive the decade 2010-2019 when interest rates were constantly falling, it had been excellent for the economy,” Charles Emond dreams aloud.