Losing $1000 is not pleasant for anyone, you will agree, so imagine if the loss is 33.6 billion, like that of the Caisse de depot et placement du Québec!
Posted at 7:15 p.m.
Despite the enormity of the sum, the CEO of the Caisse de depot et placement, Charles Emond, lives very well with this reality. And you know what ? He is absolutely right.
Sorry ? Well yes, because the Caisse’s first half 2022 loss must be assessed in context. And anyone with mutual funds saw the disaster between January and June, one of the worst semesters in 50 years.
What did the Caisse get during this time? It had a negative return of 7.9%, the equivalent of a loss on paper of 33.6 billion. However, this return is significantly better than the benchmark indices to which it is compared (-10.5%).
In other words, if the depositors’ money had been placed in the equivalent of a standard market portfolio with the same level of risk as that of the Caisse, the loss would not have been 33.6 billion, but 44.6 billion, or 11 billion more.
The Caisse’s first-half performance should therefore be seen as good news, ironically. It is a sign that the institution’s managers, at the same level of risk, have found ways to do better than their peers in this difficult context.
Even better: the Caisse beat the benchmark indices for four of its five major portfolios, which are the stock markets, fixed income (bonds, credit, etc.), private investments, infrastructure and real estate. Only the real estate sector is lagging behind, with a positive return of 10.2%, or 1.2 points below its benchmark index, and again, this index only covers the first quarter, which was better than the second.
Yes, but isn’t it the indices that are flawed, designed to benefit the Caisse? Or even the valuation of the Fund’s assets?
The question is relevant, but be aware that these evaluations and indices are verified by external firms. Above all, the Caisse beat the two liquid investment indices closely watched by the financial markets – and therefore extremely reliable – namely those of the stock markets and fixed income (see table).
In short, when a manager manages to limit the damage better than the others in a historically difficult context, we have to tip our hats to him. Especially since the market can quickly change course, as we have seen since the beginning of July, which has enabled the Caisse to make up almost half of its losses for the first six months.
In comparison, during the financial storm of 2008, the Caisse had lost 40 billion with its return of -25%, while its benchmark index had fallen by only 18.5%, hence the mega-crisis within the institution. at the time.
In the offices of the Caisse, the contrast between 2008 and 2022 is striking, I was able to observe. At the time, the ex-acting CEO, Fernand Perrault, was struggling to answer questions from journalists, tense and bogged down in his explanations, while on Wednesday, Charles Emond was incredibly calm.
There is another reason not to worry about the situation for contributors and retirees who have their retirement funds in the Fund – teachers, nurses, civil servants, construction workers, etc.
The Caisse de dépôt manages the assets of depositors, but at the same time, their liabilities have largely benefited from the upheavals in the market. This liability is the set of retirement payments that will be due to workers and retirees over the next few years.
“Despite the very poor returns, the position of pension plans in the market has improved significantly, as liabilities have shrunk more than assets,” said Claude Lockhead, senior partner in the firm’s Montreal office. of Aon actuaries.
How then ? This is because the sums which are due in the future to retirees and active employees (the liabilities) are estimated according to their present value. However, this value updated by actuaries decreases when interest rates increase, which has been the case in recent months.
Thus, between 1er January and June 30, 2022, the funded ratio of large corporate pension plans listed on the Toronto Stock Exchange fell from 97% to 100.5%, according to the Aon index. In other words, these companies are now able to assume the full payments of their contributors and long-term retirees, against 97% at the start of the year.
With the stock market rally over the past 45 days, this capitalization rate has even reached 103.1% today, an unprecedented level within Aon’s 10-year horizon.
Yes, but what about inflation, which can surpass the indexation of retirees’ pensions? It hurts in the short term, of course, but from the perspective of the investments of the Caisse and its depositors, i.e. the very long term, inflation will fall back into the range desired by the Bank of Canada (from 1% to 3%). , say most economists.
In short, in light of the Caisse’s half-year results, depositors can rest easy.