First half of 2010: positive overall return for Caisse in challenging markets
$4.1 billion in Valued Added Above Benchmark Index
MONTREAL, Aug. 19 /CNW Telbec/ - The Caisse de dépôt et placement du Québec announced today that the weighted average return of the depositor funds for the first half of 2010 amounted to 2.33%, compared to -0.74% for its overall portfolio's benchmark index. The Caisse outperformed the markets by 307 basis points (3.07%), leading to $4.1 billion in value added compared with the benchmark index. The Caisse's net assets stood at $135.8 billion, as at June 30, 2010, compared to $131.6 billion, as at December 31, 2009.
"The markets were challenging and volatile in the first half of the year, with sharp declines in global stock market indicators and significant concerns about European and U.S economic outlooks," said Michael Sabia, Caisse President and Chief Executive Officer. "Despite this fact, the Caisse navigated this unfavourable environment well. Our results reflect the work of our asset managers during this period. We find it particularly encouraging that we could produce $4.1 billion in value added compared with the markets. This was largely due to the Caisse's range of measures to solidify its foundations, add rigor to every activity and increase its flexibility."
Overall Performance - Caisse vs. Benchmark Index
A chart is available at http://www.lacaisse.com/fr/nouvelles-medias/Documents/Communique_RF2010_30062010_EN.pdf
"In my opinion, this also indicates that our portfolios are more robust and stable than before," said Mr. Sabia.
"Despite our many achievements during the first half of the year, we still have much to do. Our goal is to provide consistent, long-term returns to our depositors," said Mr. Sabia. "This will continue to be a challenge, since we expect markets to remain volatile for some time."
Key Achievements
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In the first half of the year, the Caisse was very active, managing both its portfolio and balance sheet. Here are some examples of its key achievements:
- New depositor portfolio offer: The new specialized portfolio offer aims
to better meet the needs identified in consultation with depositors in
2009 (see attached information sheet).
- This is a simplified, more flexible offer that makes it easier for
depositors to establish their investment policies and, in turn,
better meet their specific needs.
- ABTN: In the first half of the year, the Caisse conducted some hedging
in accordance with its risk management strategy, which substantially
reduced the ABTN portfolio's attributable risk, by about 45%,
minimizing the effect of market movements.
- Underweight in Equity portfolios: In addition, the Caisse implemented a
proactive underweight strategy in its Equity portfolios due to
increased market risk, particularly related to the European crisis.
- Reduced leverage: The Caisse eliminated its private equity portfolio
leverage and continued its strategy of reducing it in its Real Estate
portfolio:
- The leverage ratio (total assets versus liabilities) continued to
decline, reaching 21%, as at June 30, 2010, compared to 23% (as at
December 31, 2009) and 36% (as at December 31, 2008).
- The consolidation of our balance sheet continued with the
completion of the $8 billion financing program announced in fall
2009 and completed in June 2010. This financing was used to repay
short-term debt and better match financing sources and financed
real estate assets. This program did not increase the Caisse's
total leverage.
- Cost control: Consistent with its recent commitments, the Caisse took
these measures with the aim of controlling operating expenses and
remaining in the league of best-in-class managers. The institution is
also on track to achieve its 2010 objectives.
Returns as at June 30, 2010
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"Given a challenging market environment, the results of the first half of 2010 reflect the fundamental quality of our assets," said Roland Lescure, Executive Vice President and Chief Investment Officer of the Caisse. "They are also the result of proactive asset allocation that takes the market environment into account."
The four main factors behind the $4.1 billion in value added are the following:
1. The excellent performance of the Private Equity portfolio (+14.7%
return), due primarily to operational improvements by many portfolio
companies, which increased their profits.
2. The superior performance of the Caisse's fixed income portfolios
(+6.0% return), mostly from corporate and real estate debt
investments.
3. The good performance of the Investments & Infrastructure portfolio
(+10.1% return), which benefited from the substantial gains of its
large portfolio investments.
4. A proactive underweight in Equity portfolios.
Furthermore, the Equity Markets portfolios (with a -5.5% return) were negatively affected by the repercussions of Europe's public finance crisis, China slowdown fears and U.S. economic uncertainty. New York's S&P 500 dropped by 7.2% (in Canadian dollars) and Toronto's S&P/TSX Composite fell 2.6% in the first half of the year. In May 2010, the Dow Jones Industrial also experienced its largest monthly decline since 1940.
Finally, the Real Estate portfolio posted a slightly positive return during the period, benefiting from the gradual recovery in sector fundamentals since July 2009. This recovery was more evident in Canada and the U.K. Other markets experienced more nuanced improvements. After a difficult period in 2009, shopping mall and office building sector returns were positive in the first half of the year. The hotel sector, however, continued to decline.
The table below provides more information on the Caisse's overall performance during the first half of 2010 according to the new specialized portfolio offer's asset classes:
(Returns as at June 30, 2010)
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Contribution
to Value
Return Index Variance Added
Asset Class (%) (%) (%) (above index)
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Fixed Income 5.98 4.27 1.71 $0.9 B
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Inflation-
Sensitive
Investments 3.82 0.44 3.37 $0.7 B
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Equity -1.70 -5.37 3.67 $2.2 B
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Caisse
Return(1) 2.33 -0.74 3.07 $4.1 B
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(1) The total includes the ABTN portfolios, hedge funds, asset allocation
fund, and overlay strategies.
"Since we expect markets to remain turbulent, we will continue to monitor developments very closely and will be ready to respond quickly whenever it's necessary," added Mr. Lescure.
ABOUT THE CAISSE DE DÉPÔT ET PLACEMENT DU QUÉBEC
The Caisse de dépôt et placement du Québec is a financial institution that manages funds primarily for public and private pension and insurance plans. As at December 31, 2009, it held $131.6 billion in net assets. As one of Canada's leading institutional fund managers, the Caisse invests in major financial markets, private equity and real estate. For more information: www.lacaisse.com.
NEW PORTFOLIO OFFER
In the first half of 2010, the Caisse, in a fiduciary spirit, fundamentally changed its specialized portfolio offer with four objectives in mind:
1. Offer depositors greater flexibility by providing new investment
options and hedging risk strategies
2. Simplify portfolios and reduce their overall risk by curtailing
leverage and the use of complex derivatives
3. Ensure specialized portfolio coherence and facilitate understanding of
their risk-return profiles
4. Concentrate active management in asset classes in which the Caisse has
a comparative advantage
Seventeen specialized portfolios grouped into four broad categories
The new offer aims to facilitate the establishment of each depositor's investment policy and better meet their specific needs.
As a result, the 17 specialized portfolios have been grouped into four categories based on their risk-return profiles:
- The Fixed Income category matches asset and liability duration and
interest rate risk.
- The Inflation-Sensitive Investments category does the same with medium-
and long-term inflation risk.
- The Equity category enhances expected returns in line with depositor
risk tolerance.
- The Other Investments category provides greater investment
diversification.
Active management remains the main, preferred approach-only where the Caisse has a comparative advantage.
Overlay Strategies
In addition to these 17 portfolios, the Caisse now offers overlay strategies, allowing each depositor to customize a hedge against certain risks. Currently, foreign exchange hedging strategies are available to depositors. Other strategies against inflation and interest rate fluctuations will also be offered to them.
Accordingly, the Caisse enhanced its advisory services to better assist depositors in establishing their investment policies and choosing effective hedging strategies.
SUMMARY OF SPECIALIZED PORTFOLIO OFFER CHANGES
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FIXED INCOME INFLATION-SENSITIVE INVESTMENTS
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- Short-Term Investments* - Real Return Bonds*
- Bonds - Infrastructure
- Long-Term Bonds* - Real Estate
- Real Estate Debt
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EQUITY OTHER INVESTMENTS
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- Canadian Equity - Hedge Funds
- Global Equity - Asset Allocation
- Québec International(xx) - ABTM
- U.S. Equity*
- EAFE Equity*
- Emerging Markets Equity
- Private Equity
* Index portfolios
(xx) Closing
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FIXED INCOME (four specialized portfolios)
- Short-Term Investment*: index-managed portfolio
- Bonds: actively managed portfolio whose index was changed to reflect a
greater proportion of Québec bonds. The portfolio now includes all
types of corporate bonds.
- Long-Term Bonds*: index-managed portfolio with a new index that
places a greater emphasis on Québec bonds.
- Real Estate Debt: actively managed portfolio that focuses on high-
quality Canadian mortgages. Its index was adjusted accordingly.
INFLATION-SENSITIVE INVESTMENTS (three specialized portfolios)
- Real Return Bonds*: index-managed portfolio.
- Infrastructure: actively managed portfolio that will focus on
conservative investments with regular income and low volatility.
- Real Estate: actively managed portfolio with a lower maximum leverage
level. Its benchmark index was changed.
EQUITY (six specialized portfolios)
- Canadian Equity: actively managed portfolio that seeks long-term
capital growth
- Global Equity: actively managed portfolio with a global sectoral
approach. External management is used, whenever necessary, to
complement the expertise of Caisse managers. This portfolio will be
gradually funded by the Québec International portfolio in the coming
months.
- U.S. Equity*, EAFE Equity* (formerly Foreign Equity) and Emerging
Markets Equity*: index-managed portfolios that are no longer hedged
against foreign exchange risk.
- Private Equity: actively managed portfolio that now includes the
"Investments" component of the former Investments and Infrastructure
portfolio. Its index was changed to reflect its new objectives.
OTHER INVESTMENTS (three specialized portfolios)
- Hedge Fund: actively managed portfolio with a fund-of-funds strategy
- Asset Allocation: actively managed portfolio that will focus on
tactical asset allocation.
- ABTN: unfunded portfolio launched to ensure greater transparency.
For further information: Maxime Chagnon, Senior Director, Media Relations, 514 847-5493, [email protected]
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