CDPQ’s Annual Report Reveals a Smooth Operator in Turbulent Markets

Caisse de dépôt du Québec (CDPQ) maintained its resilience in the late 2018 market dip and stood on track of its internal targets across the board, according to its 2018 annual report.

Its strategies in real assets produced the most profound returns for the $309.5 billion institutional investor, generating a cool 9.0%, significantly higher than its fixed income and equities portfolios, which generated 2.1% and 3.5% in the period, respectively.

CDPQ’s overall return totaled 4.2%, higher than the benchmark and representing $5.3 billion in added value compared to the previous period. Respective five- and 10-year performance figures chalked up to 8.4% and 9.2%, a reflection of the distraught period markets went through at the end of 2018.

It’s a clear shift that exposes the effect of derogatory markets on their strategies, whereas equities was the highest performer in CDPQ’s portfolio at the halfway mark of the year.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

“We generate sustained returns through key transactions in major asset classes,” CDPQ said in the report. One of the most significant of these is its $1 billion investment in the Réseau express métropolitain rapid transit system in its home province, as well as more than $5.8 billion in infrastructure investments, $9 billion in private equity, and $16.6 billion in real estate.

The California Public Employees’ Retirement System (CalPERS) also witnessed real assets rise to the top of its return profile, generating more than 20% in its latest report, significantly higher than any other asset class in the $350+ billion portfolio.

With regards to its climate change initiatives, CDPQ outperformed its target with the addition of $10 billion in low-carbon assets in 2018, prompting it to raise the target in 2020. It also managed to reduce the carbon output of investments in its portfolio by 10%, with 25% scheduled for 2025.

The general theme that can be construed from the report is long, continuous growth for one of the country’s largest institutional investors. Since 2009, its net assets grew from $120.1 billion in the beginning of 2009 to $309.5 billion in 2018. The progress is illustrated below:

Soource: Caisse de dépôt du Québec

CDPQ Raises Low Carbon Asset Target to C$32 Billion in 2020

Tags: Caisse de dépôt et placement du Québec (CDPQ), Pension, Real Assets, Returns

No stranger to bold investment moves, such as loading up on hotels, Michigan’s pension plans are getting returns from tunes.

Michigan’s Treasury has a majority stake in Concord Music, a record label that owns the rights to nearly 400,000 songs. Thanks to royalties from airplay, streams, and sales, the $25 million investment made in 2010 is now worth $1.8 billion.

How’s that for an alternative station?

Unlike virtually any other investment, the idea is that music is not something that will slow down in the face of recession. True, although ticket sales to concerts and album sales might suffer during a down period, one guiding principle remains at the organization.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

“We believe music is somewhat less dependent on the economy than many other industries and products, as well as business cycles,” Jon Braeutigam, Michigan’s chief investment officer, told CIO. “When a recession happens, people stop buying larger items; however, we believe they will continue to listen to music.”

Regardless of the economic situation, each time a Concord-owned song plays, Michigan’s pensions get a cut—and they’ll get it no matter what’s going on in the markets.

The state will also keep harvesting money from Concord’s artists for decades, as copyrights expire 70 years after musicians’ death. Some of the label’s big names include post-Beatles Paul McCartney, ZZ Top’s Billy Gibbons, Creedence Clearwater Revival, Santana, George Benson, and Miles Davis. It also owns the rights to a variety of musicals from composers like Richard Rodgers, Oscar Hammerstein, and Andrew Lloyd Webber.

It even gets a cut from pop singer Ariana Grande, who’s single “7 Rings” is a reimagining of Rodgers and Hammerstein’s “My Favorite Things” from The Sound of Music.

“The initial investment was made when there was uncertainty in the music industry as consumers were changing the way they were listening to music, going from compact discs to digital forms,” said Braeutigam. “Today, whenever you hear a song being played on a smart home device, streaming service, commercial, or some other format, music owners are getting paid the royalties which are due them.”

Despite owning a bulk of Concord, Michigan does not get involved in the company’s affairs. That’s done by Barings Alternative Investments, which the state has partnered with. Barings employs music businesses veterans.

“This is just one piece of our diverse investment portfolio,” the CIO said.

Michigan also owns stakes in several hit television shows, such as “The Big Bang Theory” and “Friends.”

The Treasury’s investment bureau keeps watch over the financial moves made by the state’s four retirement funds: the Michigan Public School Employee Retirement System, the Michigan Judges Retirement System, the Michigan State Police Retirement System, and the Michigan State Employees’ Retirement System. The funds collectively have about $70 billion in assets under management and serve 530,000 members, according to the Treasury’s most recent annual report.

Funding status differs from plan to plan, averaging to about 72% funded. The most well-off is the 97.8%-funded judge program. The remaining three funds’ ratios fall between the low and mid 60s.

Neither Concord Music nor Barings could be reached for comment.

Tags: Ariana Grande, Concord Music, Michigan, Music, Pension