The world looks less and less like the great global village once celebrated, in the opinion of the CEO of the Caisse de depot et placement du Québec (CDPQ), Charles Emond. And it won’t get better.
“What has been most underestimated for ten years by my peers is the geopolitical risk”, noted in an interview with the Duty last week the big boss of the Quebec institution, three quarters of which some 400 billion in total assets are invested in nearly 70 countries, or 170 billion more than five years ago. “The world is complex, uncertain, volatile. And it will get more complex before it gets easier. »
However, the world economy is no longer in the era of “the only search for the lowest cost [et à l’idée d’un] large global village, [où] everyone joins hands, ”observes the one who is to present a conference on the subject on Tuesday before the Council for International Relations of Montreal (CORIM). “The global village has become more fragmented. »
We often talk about this opposition that there would be between, on the one hand, the developed countries (where the rules would be more predictable and clearer) and, on the other hand, the rest of the planet (where we would be more exposed to uncertainty and arbitrariness). But even “investing in a developed country is no longer the same as five or ten years ago,” he explains.
And it’s not just about the United States in the days of former President Donald Trump or the United Kingdom in the era of Brexit. “The reality is that all countries are currently a little more populist, a little more focused on their own policies and domestic issues or plagued by social tensions. »
In these circumstances, the Caisse de dépôt has no choice but to establish investment policies adapted to the particularities of each economy. We also seek, each time, to join forces with a local partner who will have “the influence, knowledge of the field, relations with the authorities” useful for finding good deals and intervening in our favor if necessary.
40% in the United States, 25% in Canada
With, as of December 31, 78 billion in assets in Quebec, where the gross domestic product is just over 500 billion, the CDPQ is already the pension fund that invests the most in its own economy in the world, welcomes Charles Emond. We have set a target of increasing this total to 100 billion by 2026.
However, as of December 31, Canada as a whole accounted for only a quarter of its $402 billion in total assets. In fact, it was in the huge American economy that the Caisse de depot had the largest share of its assets, with 40% of the total; Europe (16%), the Asia-Pacific region (12%), Latin America (4%) and the rest of the world (3%) come much further behind.
However, it is to be expected that the relative weight of the United States will decrease in favor of Asia in order to take into account the phenomenal growth of the latter, says Charles Emond. “There is a tailwind. But caution is still in order. »
Too much importance should not be given to the recent closure, for essentially technical and practical reasons, of the last (small) office that the Caisse de dépôt still had in China, assures its chief. It is true, however, that business conditions in the world’s second largest economy and the often tense relations between Beijing and Western countries have prompted the institution to invest only 3% of its assets there and to keep them in relatively simple, like the Stock Exchange, or less contentious, like warehouses and logistics.
On the other hand, recent supply chain disruptions have shown how economies are often more intertwined than they appear. “If you have shares of Volkswagen, Apple or Home Depot, you have 30% of your portfolio that is exposed to China,” he recalls.
The advantage of the Caisse de depot
The past year has been difficult for the CDPQ, which mainly manages the assets of Quebec public and parapublic pension funds, but also other government agencies.
Faced in particular with soaring inflation, a record rise in central bank interest rates and the amplification of geopolitical tensions with the invasion of Ukraine by Russia, it had to deal with the worst simultaneous stock and bond market correction in 50 years. This resulted in a negative return of 5.6% which, despite everything, compared very favorably with the losses incurred by the other comparable players.
The Caisse de dépôt has also won international awards as a leader in its sector, notably for advancing the principles of sustainable investment, as well as for its contribution to the economic development of Québec.
These honors are not only pleasing, says Charles Emond: they highlight an advantage that the CDPQ does not fail to highlight in a world where competition between major international investors for major projects is increasingly fierce.
Unlike others, the Caisse de dépôt’s commitment to real and sustainable development is not only aimed at giving itself a good image or a good conscience, underlines its boss. In environmental matters, for example, “people see it a lot as a defensive strategy, as something that needs to be said today”. “The reality is that the climate transition is the biggest investment opportunity there has been in 50 years. It’s gigantic. »
As proof, the CDPQ’s investments in renewable energies have brought it a 20% return over the past 5 years, compared to 7% in oil… “if we hadn’t gotten out of it”.
As for the development of the Quebec economy, “entrepreneurs here know that it won’t be long before they come up against the walls of the Quebec border and have to go outside”. And the Caisse de dépôt can help them do so by sharing its expertise and putting them in contact with the some 5,000 companies with which it does business around the world.