I have a lot of admiration for the Caisse de depot et placement du Québec (CDPQ), where I went, like many. However, even if she is the ideal manager of our pension, it would be a false good idea to entrust her with our registered retirement savings plans (RRSP).
Michel Girard, columnist at Montreal Journal, proposes allowing Quebecers “to directly invest a portion of their savings in a mutual fund based on the gigantic diversified portfolio of the Caisse. »1 The distribution would be entrusted to Épargne Placements Québec.
Unfortunately, it would be difficult to “clone” the performance of the CDPQ, because more than a third of its assets are made up of illiquid investments, which cannot be easily reproduced, such as its buildings, its infrastructures or its unlisted companies. .
It was impossible to add more floors to Place Ville Marie when contributions from savers would flood in. A new tower would not offer the same return, because neither the costs nor the attractiveness would be the same.
Whether it’s the REM, stakes in the Channel Tunnel or in the port of Brisbane, Australia, the most interesting infrastructures are often unique and the competition to acquire them fierce. Buying it for our RRSP would deprive current depositors of it.
Cloning the equity portfolio on the stock market and a good part of the bond portfolio is possible, although the latter includes private financing. But the management of stocks and bonds is not the Caisse’s distinctive advantage.
Contributors and retirees of the Quebec Pension Plan, provincial government officials and other depositors are lucky that the Caisse has the size and expertise to invest in illiquid assets, but this comes with constraints that are difficult to reconcile with an RRSP. .
In the case of group plans, actuarial calculations make it possible to predict the inflows and outflows of funds, which makes it possible to tie up part of the capital for a very long period, especially since most of the Caisse’s clients have no not allowed to change managers if they are unhappy. The advantage is that these investments diversify the risks and yield a little more than long-term liquid assets2.
Entrusting one’s RRSPs to the Caisse would require freezing these funds at least until retirement, regardless of performance, or keeping a solid proportion of liquidities that yield almost nothing to return the money to those who would like to change managers. .
Many would be disappointed with the results, which were necessarily lower than the Caisse’s return, because distribution costs on the retail market would have to be deducted, even if this task were entrusted to Épargne Placements Québec.
A suitable portfolio? Or beat the markets?
The return of the Caisse which is making the headlines is the weighted average of the returns of its 46 depositors, pension and insurance plans, all slightly different, because each requires a portfolio adapted to its liabilities, the profile of the payments it will have to spend.
Looking for a manager who beats the market for your RRSP is not the best way to ensure your retirement. Few achieve this, net of expense, and outperformance is rarely sustainable. More important is to start saving early to take advantage of compound returns.
In fact, the most decisive choice is the unsexy one of the distribution of asset classes. Also, each Caisse depositor carefully calibrates his portfolio to fulfill the promises made to retirees or insured persons.
An RRSP reproducing the distribution of the Caisse’s overall portfolio – or even a portfolio designed for individuals – would suit everyone like 9 ½ shoes for men. Hence the importance of obtaining personalized advice to establish and adjust over time a distribution according to age, objectives and risk tolerance.
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It would be good to find a formula allowing the small saver to invest in illiquid assets, in addition to his house. But it’s difficult to reconcile the freedom to change your mind or deal with the unexpected with the freezing of savings over a very long period, without sacrificing performance.
The Canadian pension model is not perfect, but it is superior to that of many countries with its different pillars. I do not believe that we improve the RRSP system by entrusting it to the Caisse, which is not the job.
Some will see here the defense of private managers, certainly opposed to Mr. Girard’s proposal. I see it rather as a precaution not to put all your eggs in one basket, especially when it is not designed for small quail eggs.
2. Real estate and infrastructure have stable income, but yield more than bonds, while private investments give a better return than listed shares.