Fixed Income Weighs Down CDPQ to 5.6% Loss in 2022

Caisse de dépôt et placement du Québec, Canada’s second-largest pension fund, reported an investment loss of 5.6% for 2022, which lowered its total asset value to C$402 billion ($295.6 billion) from C$419.8 billion at the end of 2021.

The pension fund blamed the performance on what it called “the worst simultaneous stock and bond market correction in 50 years,” which weighed down its fixed-income portfolio in particular.

Despite the loss, the pension fund’s portfolio outperformed its benchmark, which lost 8.3% for the year, while all of its asset classes also outperformed their respective indices. Over the past five and 10 years, the pension fund had annualized returns of 5.8% and 8%, respectively, compared with its benchmark’s annualized returns of 4.9% and 7.0%, respectively, over the same time periods.

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“2022 presented many challenges: skyrocketing inflation, historic central bank interest rate hikes and heightened geopolitical tensions,” Charles Emond, president and CEO of CDPQ, said in a release. “Faced with this extraordinary context, all our asset classes managed to outperform their indices, while there were few places for investors to take refuge.”

The pension fund’s fixed-income investments were a significant drag on its earnings, losing 14.9% during the year. Nevertheless, it outperformed its benchmark index’s 16.4% decline and, over the past five years, gained 0.5%, while its benchmark is down 0.5% during the same time period. CDPQ also said it took advantage of the market environment in 2022 and made more than $15 billion in private credit investments and commitments during the year at attractive entry rates.

CDPQ’s real-asset investments, which are made up of its real estate and infrastructure portfolios, were its top performing asset class with a 12% return for the year, easily surpassing its benchmark’s return of 5.2%. However, over the past five years, the asset class’ annualized return of 5.4% falls short of its benchmark’s 6.2% annualized return over the same time period. CDPQ blamed the underperformance on the impact of the pandemic on its real estate portfolio, especially in the shopping center sector.

Within the real assets category, the pension fund’s buildings portfolio returned 12.4%, compared with its benchmark’s return of 9.2%, while the infrastructure portfolio earned 11.5% to easily beat its benchmark’s 0.8% return. CDPQ attributed the strong outperformance of the infrastructure portfolio to its renewable energy assets.

CPDQ’s equities investments, which consist of its stock markets and private equities portfolio, was down 5.7% in 2022, but ahead of its benchmark’s loss of 6.9%. Over the past five years, the equities category has returned 9.5% on an annualized basis for the pension fund, surpassing its benchmark’s 8.3% return over the same time period.

Meanwhile, the private equity portfolio earned 2.8% for the year and 17.3% on an annualized basis over the past five years, while its benchmark index was flat for the year and has annualized returns of 12.0% over the past five years. Among other things, CDPQ attributed the outperformance to the growth in profits of private companies and its “advantageous positioning” in the health and insurance sectors.