Caisse Focuses On ‘All-terrain Portfolio’ As Return Drops to 7.6%

As it continues to build an ‘all-terrain’ portfolio, Caisse de dépôt et placement du Québec posted a return of 7.6 per cent in 2016. This is down from 9.1 per cent in 2015 and 12 per cent in 2014.

“The world right now has a lot of risk, geopolitically, in particular, and so we will continue to look for building a portfolio that we call an ‘all-terrain’ portfolio . . . because we’re looking for stability, we’re not looking for results. That would be unrealistic in such an environment of uncertainty,” said Michael Sabia, Caisse’s president and chief executive officer, speaking at a press conference on Friday morning.

“We are not looking for spectacular results nor catastrophic results. For this reason, we will continue to manage risk and maintain the risk level reasonably low, and also continue to act in a conservative way on using leverage and those kind of things because our starting point is the world is full of uncertainty.”

The fund’s fixed-income portfolio took a hit for the third year in a row. Yield for that asset class dropped significantly from 8.4 per cent in 2014 to 3.9 per cent in 2015. In 2016, it decreased again to 2.9 per cent.

“Fixed income: the party’s over. It’s obvious,” said Sabia. “We’re going to restructure this portfolio in order to lower our exposure to traditional bonds and increase and diversify our investment in credit.”

The restructuring of Caisse’s fixed-income portfolio will involve splitting it into two: a smaller fixed-income portfolio and a corporate credit portfolio. “We’re breaking that apart into two portfolios, one of which will essentially be traditional fixed income. We will make it significantly smaller but we need to keep that for a variety of reasons . . .

“We’re creating another portfolio and putting the investments we have made so far in . . . corporate credit into that portfolio. It’s in that portfolio that we’re going to put more priority, on building that portfolio, because we think that can offer us a relatively low level of risk but somewhat higher returns.”

Caisse’s equity asset class, which makes up 49 per cent of its overall portfolio, took a very small hit in 2016, dropping to 10.4 per cent. That’s compared to 11 per cent in 2015 and 13.9 per cent in 2014. Net assets in its equity portfolio at Dec. 31, 2016 was $131.7 billion, with $12.3 billion of that total added in 2016 and $63.7 billion added over the past five years.

“The equity markets have continued to deliver a good return, but as we said last year, in our opinion, slowly, this rate of return, which comes from equity markets, will continue to go down slowly,” said Sabia.

At the end of 2016, Caisse’s net assets reached $270.7 billion. This compared to $248 billion at Dec. 31, 2015, $225.9 billion at Dec. 31, 2014 and $159 billion at Dec. 31, 2011.