Given the evolution of the financial markets during this period from 2019 to 2023, does an annualized return of 6.39% represent a good performance on the part of the Caisse’s managers?
I would describe it as “correct”, but nothing more.
Over the last five years, the Caisse de dépôt et placement du Québec has spent $9.8 billion in internal and external management costs. During this same five-year period, the Caisse notably paid $892 million in bonuses to its 1,600 employees, including $56 million to the six members of its senior management. CEO Charles Emond alone collected $16.2 million in bonuses.
How much did these colossal portfolio management expenses from the Caisse bring us in over five years? An annualized return of 6.39%. This is a bit above the average return (6%) that the Caisse’s depositors expect to be able to meet their financial needs.
The little saver
One thing is certain, with the Stock Market Bonds of Épargne Placements du Québec, a completely safe investment, the small Quebec saver has nothing to envy of the major portfolio managers of the Caisse de dépôt et placement.
Let’s take as an example the two issues of 5 and 10 year stock bonds which matured at the end of December 2023. The 5 year term yielded an annualized return of 7.85%, compared to 6.39% for the Caisse’s experts with their vast, balanced portfolio. Regarding the 10-year term, it provided its holders with an annualized return of around 7.4%, just like the Fund.
I remind you that the performance of Stock Market Bonds is based on the stock market performance of the IQ-30 Index, which Quebec index is made up of the 30 large companies listed on the Toronto Stock Exchange that have their head office in Quebec. Holders of these Stock Market Bonds do not run any risk. It is Épargne Placement Québec which takes all the risks, in exchange for which it keeps the dividends paid on the securities of the IQ-30 Index.
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We talk…
When I watch the performance of said stock market bonds evolve, I find myself wondering if it is really worth it for the Fund to spend billions of dollars annually in portfolio management costs to finally end up with a “correct” return. ”, but nothing more.
As proof, over one year to December 31, 2023, the Fund reported a return of 7.2% and the stock market bond accumulated a return of 8.8%. Over 3 years, the annualized return is 4.69% for the Fund and 7% for the stock market bond. Over 4 years, since Charles Emond headed the Fund, the annualized return is 5.42% compared to 5.9% for the stock market bond.
That said…
Obviously, the Caisse, with its colossal net assets of $434 billion, absolutely cannot put all its eggs in one basket and only bet on Quebec companies.
This is why it is rightly diversifying its investments throughout the world.
Over the last five years, with its annualized return of 6.39%, the Fund has managed to reap a capital gain of 108 billion dollars.
When the Caisse’s senior management presents its performance to us from the perspective of this added value, it is clear that the result is impressive.
However, when I look at the ratio “management costs of $9.8 billion versus capital gains of $108 billion”, this amounts to paying the equivalent of an expensive “commission” of 9% on the gains obtained. That’s a big commission!
I will be told that creating such added value does not grow on trees. It takes effective portfolio managers to succeed in making Quebecers’ nest egg grow. I agree with that…
Expectations are high
In return for the high bonuses (commonly called variable compensation) paid to members of the Caisse’s senior management, we expect solid performance.
With its annualized return of 6.39% over 5 years, not only was the Caisse “beaten” by the Épargne Placements Québec stock market bonds, but this is also the case compared to the median return (7 .72%) obtained by the diversified funds of Canadian pension funds, according to the firm Telus Santé.
What’s more, with a portfolio made up of only three index funds that are purchased on the Toronto Stock Exchange, namely XBB (35% Canadian bonds), XIC (32.5% Canadian stocks ), and the XWD (32.5% of global stocks), the small investor would have obtained an annualized return of 7.9%.
Here are the Caisse’s eight largest depositors, with their net assets:
1. Retraite Québec: $121.4 billion (Quebec Pension Plan)
2. Government pension plan sinking fund: $115 billion
3. RREGOP: $86.6 billion (Pension plan for government and public agency employees)
4. Construction Commission: $31 billion (Supplementary pension plan for employees of the Quebec construction industry)
5. CNESST: $20.3 billion (Commission for Standards, Equity, Health and Safety at Work)
6. Generations Fund: $19.4 billion
7. Société de l’assurance automobile du Québec: $13.6 billion
8. RRPE: $11.8 billion (Pension plan for management personnel)
These eight depositors represent 96.5% of the Fund’s net assets!
