Caisse de dépôt et placement du Québec president and CEO Charles Emond comments the pension fund’s annual results in Montreal on Feb. 20, 2020.
The Canadian Press
Canadian pension fund giant Caisse de dépôt et placement du Québec has seen a loss on its investments for the first time since the financial crisis more than a decade ago, hit largely by its exposure to shopping centres amid the coronavirus crisis. Its chief executive sees more pain ahead.
The Montreal-based institution, Canada’s second-biggest pension fund, on Friday disclosed a negative return of 2.3 per cent for the first half of the year – its first decline since the $40-billion, 26-per-cent loss of 2008. Net assets fell to $333-billion at the end of June from $340-billion at the end of December.
In the months to come, the Caisse said it would speed up a pivot to more promising real estate holdings and boost investments in technology companies, in which the pension fund has been underinvested of late. It is also writing down to zero the US$170-million invested in Cirque du Soleil since 2015, but declined to say whether it could come back with partners and make an offer for the insolvent company.
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“This is a historic crisis that is not done yet,” Caisse CEO Charles Emond told reporters on a conference call. “We have difficult months ahead of us. We are hoping for the best but we are ready for the worst and for any situation.
“The markets will remain difficult to predict. We will have to be prudent, rigorous, selective because the next year will be difficult given this economic crisis that is going on and we are not immune to it. If it lasts, good companies could go under.”
The results highlight the scope of the challenge ahead for Mr. Emond, a former Bank of Nova Scotia executive who took over as CEO of the pension-fund manager in early February as global stock markets were climbing to record highs. The coronavirus pandemic has altered the picture completely since, creating deep problems in many sectors of the global economy even as it opens up private-equity buying opportunities.
Exceptional central-bank monetary policies coupled with historic government assistance programs have prevented the recession from becoming a depression, but there is a growing dichotomy between the real economy and financial markets, Mr. Emond said. The pandemic has accelerated certain trends that were already under way, particularly in technology and retail, he said.
Trouble in the Caisse’s shopping-centre investments, intensified by the COVID-19 pandemic as many malls were shut down, contributed to an 11.7-per-cent loss for the real estate portfolio, the pension fund said in a statement Friday. The Caisse said it would speed up plans for each of those assets and shift resources to other market segments, such as warehousing and logistics. The bulk of its shopping centres are in Canada, including Vaughan Mills in the Toronto region and Market Mall in Calgary.
Like other major real estate players, the Caisse’s Ivanhoé Cambridge property arm is facing an extraordinary economic crisis, with malls suffering and the future of office towers coming into question as tech giants such as Shopify and Twitter embrace permanent work-from-home arrangements. Ivanhoé head Nathalie Palladitcheff is trying to whittle down the company’s stake in malls, but she told The Globe and Mail in June that she still has faith in office buildings and wants to increase investments in residential and industrial real estate.
Infrastructure, private equity and credit investments were all bright spots for the Caisse in the quarter. The pension fund has sufficient liquidity to meet the needs of its depositors while supporting Quebec companies and investing opportunistically, Mr. Emond said. He said the pension fund came into the coronavirus crisis with a “defensive position.”
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It might have been too defensive. The Caisse took a major hit in the first half of the year from a loss of 5 per cent in equities, which it pinned on its limited exposure to technology stocks that punched to record highs.
To illustrate the dynamic, shares of the world’s five tech giants – namely Google, Apple, Facebook, Amazon and Microsoft – soared 31.4 per cent during the first half of the year while some 3,000 other stocks tracked by the MSCI All Country World Index fell by a combined 4.8 per cent, the Caisse said. The five companies together now make up about 20 per cent of the S&P 500 index, a concentration not seen since the 1990s, it said.
“Caisse analysts are used to evaluating companies based on historical modelling, weighing things like past cash flow,” said Michel Nadeau, a former vice-president at the pension fund who now works for Montreal’s Institute for Governance. “Now they’re going to have to make a leap of faith. When these companies are such huge fixtures in the index, it’s hard to say ‘I won’t [own them].’ “
Given the tech sector’s increasing economic importance, the Caisse has to “look at it through a new lens, open our minds,” Mr. Emond said.
The Caisse, which operates under a dual mandate to generate returns and contribute to Quebec’s economic development, in March created a $4-billion fund to help Quebec businesses affected by the COVID-19 pandemic. The aid includes loans and lines of credit. About 45 per cent of the funds have already been allocated, the pension fund said Friday.
The pension fund was a 20-per-cent owner in Cirque du Soleil, which filed for bankruptcy protection in late June. A court-supervised process to sell Cirque is now under way, with a credit bid worth about US$1.2-billion from the company’s lenders approved by the court as the offer to beat.
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To succeed in the future, Cirque needs “a strategic operator” among its owners in order to reinvent itself as well as a reasonable level of debt, Mr. Emond said. Whether the Caisse puts more money in play and makes a bid for the company will depend on how things unfold, he said.
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TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
