MONTRÉAL, April 25, 2017 /CNW Telbec/ - Caisse de dépôt et placement du Québec today released its annual report for the period ended December 31, 2016. The report presents a detailed analysis of the financial results announced on February 24 and provides a complete review of la Caisse's activities for the past year. Highlights are presented below.
FIVE-YEAR PERFORMANCE
- Annualized return of 10.2% and $111.7-billion increase in net assets resulting from net investment gains of $100 billion and net deposits of $11.7 billion.
- Each of the three asset classes contributed significantly to la Caisse's overall five-year return, which outperformed its benchmark portfolio by 1.1 percentage points. This difference represents $12.3 billion of value-added.
- The returns of the eight main clients ranged from 8.7% to 11.4%.
2016 PERFORMANCE
- Overall return of 7.6% and increase in net assets of $22.7 billion resulting from $18.4 billion of net investment results and $4.3 billion of net deposits.
- La Caisse's overall return for 2016 outperformed its benchmark portfolio by 1.8 percentage points, representing $4.4 billion of value-added.
- The returns of the eight main clients ranged from 6.3% to 8.2%.
LA CAISSE IN QUÉBEC
- A strategy based on three pillars, each with several concrete achievements:
- Growth and globalization
- Sharing of expertise and networks to support Lasik MD, KDC and IPL in their acquisitions in the United States, as well as Fix Auto in its Asia-Pacific expansion;
- Investments in Groupe Marcelle for the acquisition of Lise Watier Cosmetics and in Moment Factory for the creation of a new multimedia entity.
- Impactful projects
- Announcement of the Réseau électrique métropolitain (REM), an integrated electric, automated public transit network for the Greater Montréal area, spanning 67 km and including 27 stations;
- Partnership between Ivanhoé Cambridge and Claridge targeting real estate investments in Greater Montréal, and continuation of construction and revitalization projects throughout Québec.
- Innovation and the next generation
- Launch of Espace CDPQ, a growth and globalization hub for Québec businesses;
- Creation of Fonds Espace CDPQ, a $50-million fund to finance innovative Québec SMEs targeting global expansion, of which $10 million are invested in startup funds in Québec City and Montréal;
- Investments in promising new economy businesses such as Triotech, Felix & Paul Studios and Stingray Digital Group;
- Support for particularly innovative businesses such as Hopper and AddÉnergie.
- New investments and commitments of $13.7 billion over five years, including $2.5 billion in 2016.
- Total assets in Québec of $58.8 billion, including $36.9 billion invested in the private sector, and partnerships with more than 550 SMEs through direct and indirect investments.
- Because it is the main driver of economic growth in Québec, la Caisse is focusing investments, in the private sector, notably in businesses, real estate and infrastructure.
RISK MANAGEMENT
- In 2016, the level of market risk in the overall portfolio declined significantly compared to 2015 – going from 24.2% to 22.9% of net assets (p. 49) – despite an increased weighting in less-liquid asset classes.
- La Caisse's high level of risk-management governance was confirmed by an audit performed by an internal audit team, with the support of an external firm (p. 50).
- The Risk group consolidated its operating structure, emphasizing cross-sectoral analysis, and provided balance in the investment committees (p. 51).
COMPENSATION
- Summary of the features of the compensation program that came into effect in 2010:
Main objectives
- Pay for performance by taking into account returns generated for clients and a sustained performance over several years.
- Offer competitive compensation to attract, motivate and retain employees whose expertise enables la Caisse to reach its strategic objectives.
- Align the interests of employees and clients over the long term.
Implementation and application
- Rigorous benchmarking of reference markets by a recognized firm, Willis Towers Watson.
- At the request of the Board of Directors, a validation of the fair application of the compensation program was performed by Hugessen Consulting, an independent firm recognized for its expertise in the compensation of pension fund personnel (p. 98).
- Review of each employee's performance based on a rigorous process to determine the incentive compensation to which the employee is entitled (p. 96).
Mandatory co-investment thresholds
- To better align employees' interests with the sustained long-term success of la Caisse, a significant portion of the total incentive compensation of some groups of employees is deferred over a three-year period.
- To remain at the forefront of industry best practices, the minimum thresholds that must be put into a co-investment account were increased significantly in 2013 for employees with a direct influence on la Caisse's organizational and financial performance:
- At least 55% of the total incentive compensation of senior executives – or more than half of their incentive compensation – thereby strengthening the alignment of officers' interests with those of clients and making this measure even more stringent than current industry practices;
- 35% of the total incentive compensation of senior vice-presidents, vice-presidents and intermediate and senior investment employees;
- 25% for other managers and high-level professionals.
- The deferred amounts to be paid in 2019 in respect of 2016 will increase or decrease according to la Caisse's average absolute overall return during this period.
Incentive compensation
- Beginning in 2016, performance is now measured over a five-year period, to further strengthen long-term performance (before 2016, the period was four years).
- Including incentive compensation, total compensation of la Caisse's employees in 2016 stood at the median of reference markets for an annualized return of 10.2% over a five-year period, corresponding to $12.3 billion of value-added versus the benchmark portfolio (p. 98).
- Total incentive compensation paid in 2017 for 2016 performance was $59.0 million (including senior executives), which is less than 1% of the $12.3 billion in cumulative value-added.
- Annual incentive compensation represents less than 0.5% of average net investment income.
- Pursuant to la Caisse's strategy to deliver sustained performance over the long term, the following table compares incentive compensation paid in these years to the cumulative value-added.
| Year |
Annualized |
Cumulative |
Incentive |
| 2016 (5 years) |
10.2% |
$12.3 B |
$59.0 M |
| 2015 (4 years) |
10.9% |
$8.0 B |
$48.6 M |
| 2014 (4 years) |
9.6% |
$2.2 B |
$39.9 M |
| 2013 (4 years) |
10.0% |
$6.0 B |
$38.9 M |
| 2012 (3 years) |
9.0% |
$5.2 B |
$35.3 M |
- The increase in incentive compensation from 2015 to 2016 is the result of significant value-added over five years in 2016 ($12.3 B), sustained returns (10.2% over five years), and the acquisition and development of the talent and expertise needed to carry out la Caisse's strategy, particularly in private equity, infrastructure and for the creation of our new credit portfolio.
- This year, under the incentive compensation program, employees (including senior executives) deferred, until 2019, an amount of $32 million.
- Incentive compensation co-invested under the incentive compensation program was paid in 2016 pursuant to program conditions and applicable tax rules. Amounts paid in 2016, which had been co-invested by the five most highly compensated executives who report to the President and Chief Executive Officer are provided in Table 41 on page 103 of the 2016 Annual Report.
Compensation of the President and Chief Executive Officer
Base salary and direct compensation
- At his request, Mr. Sabia has received no salary increase since he was appointed in 2009. His base salary remained unchanged in 2016 as it will in 2017.
- In accordance with policies that emphasize achievement of la Caisse's business objectives and its performance, this year the Board of Directors is of the opinion that "once again this year, Mr. Sabia performed exceptionally well, exceeding his objectives by a wide margin" (p. 100).
- Mr. Sabia waived any form of incentive compensation for 2009 and 2010. In 2016, he received a deferred incentive compensation amount, which was based on the amounts co-invested in 2013 and la Caisse's solid performance over three years.
- Of his 2016 incentive compensation, Mr. Sabia was paid $1,160,000 and elected to defer $1,740,000 million to the co-investment account. The value of this amount will be increased or decreased according to la Caisse's average absolute return over the three-year period ending in 2019.
Pension plan and severance pay
- When Mr. Sabia was appointed, he waived membership in any pension plan for the duration of his mandate. He also waived any severance pay.
- All details relating to the compensation of the President and Chief Executive Officer and the five most highly compensated executives appear on pages 99 to 107 of the Annual Report.
EXPENSES
- In 2016, la Caisse's ratio of expenses to average net assets was 20 cents per $100, a level that compares favourably to that of its industry.
- Expenses cover operating expenses, including compensation and external management fees.
RESPONSIBLE INVESTMENT
- La Caisse's responsible investment activities are based on two components of its policy:
- Integration of ESG (environmental, social and governance) criteria into the investment analysis or review process (p. 72-73)
- Shareholder engagement (p. 73-75).
- In 2016, various actions were taken under this policy, for example:
- A specific review of ESG criteria for 138 companies in the portfolio (p. 72);
La Caisse exercised its right to vote on 40,077 proposals in connection with 3,718 shareholder meetings (p. 75).
The electronic version of the 2016 Annual Report and the 2016 Annual Report Additional Information are available at the following addresses:
www.cdpq.com/sites/default/files/medias/en/nouvelles-medias/documents/ra2016_rapport_annuel_en.pdf
www.cdpq.com/sites/default/files/medias/en/nouvelles-medias/documents/ra2016_renseignements_add_en.pdf
ABOUT CAISSE DE DÉPÔT ET PLACEMENT DU QUÉBEC
Caisse de dépôt et placement du Québec (CDPQ) is a long-term institutional investor that manages funds primarily for public and parapublic pension and insurance plans. As at December 31, 2016, it held $270.7 billion in net assets. As one of Canada's leading institutional fund managers, CDPQ invests globally in major financial markets, private equity, infrastructure and real estate. For more information, visit cdpq.com, follow us on Twitter @LaCDPQ or consult our Facebook or LinkedIn pages.
SOURCE Caisse de dépôt et placement du Québec
Maxime Chagnon, Senior Director, Media and Public Relations, +1 514 847-5493, [email protected]
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