Caisse posts $24.6-billion loss in worst showing since 2008 financial crisis – Montreal Gazette

Article content

Unforgiving stock and bond markets led the Caisse de dépôt et placement du Québec to post its worst investment performance since the global financial crisis.

Article content

A net investment loss of $24.6 billion for 2022 translates into a negative annual return of 5.6 per cent, the Caisse said Thursday in a statement. Net assets declined 4.3 per cent to $401.9 billion as of Dec. 31. After a first-half loss of 7.9 per cent, the Caisse managed to eke out a gain of 2.4 per cent in the second half, chief executive Charles Emond said.

Article content

Although this was the Quebec public pension manager’s poorest year since 2008, when it returned a record minus-25 per cent, the performance still topped that of the Caisse’s Canadian peers.

Canada’s defined-benefit pension plans reported a negative return of 10.3 per cent last year, RBC Investor and Treasury Services said in January. The Caisse’s own benchmark index, meanwhile, retreated 8.3 per cent. The Caisse says all of its asset classes outpaced their respective indexes.

Article content

Stock and bond markets took a hammering last year — correcting simultaneously for the first time since 1969 — as inflation hit four-decade highs, central banks relentlessly raised interest rates and investor appetite for riskier assets faded after Russia invaded Ukraine. Canada’s benchmark S&P/TSX index fell about nine per cent, while the S&P 500 index of large capitalization U.S. stocks slumped 18 per cent and U.S. corporate bonds lost about 16 per cent of their value. Other stock and bond indexes posted losses of as much as 30 per cent.

“This was a very demanding environment for investors,” Emond told reporters Thursday at a press conference in Montreal. “There were aggressive interest-rate increases to contain rising inflation, and geopolitical tensions intensified. All of this fed the strong volatility that we saw on the markets.”

Article content

Fixed income fared worst among the Caisse’s major asset classes, posting a negative return of 14.9 per cent in 2022 because of rising interest rates. U.S. rates ended the year at 4.5 per cent, almost five times as high as the target originally set by the Federal Reserve. Similar trends occurred in Canada and Europe.

Emond insisted Thursday that the Caisse will be able to claw back its fixed-income losses by keeping the bonds until maturity. In the meantime, he said, any losses are purely paper losses.

“In the short term, the rise in interest rates has an impact on prices,” Vincent Delisle, the Caisse’s executive vice-president and head of liquid markets, said at the press conference. “In the longer run, it represents a rise in the future returns that are expected.”

Article content

Equities slumped 5.7 per cent, while so-called real assets advanced 12 per cent — paced by a 12.4 per cent return at Ivanhoe Cambridge, the Caisse’s property unit. Infrastructure, another key component of the real asset portfolio that includes such projects as Montreal’s Réseau express métropolitain light-rail system, returned 11.5 per cent. The first branch of the REM, between Central Station and the South Shore, is still on course to open this spring, Emond said.

Quebec Finance Minister Eric Girard, who oversees the Caisse, said he wasn’t overly concerned about the loss.

Article content

Depositors and future retirees shouldn’t expect the investment climate to improve much in 2023 because of the real possibility that interest rates will continue to head higher just as economic growth tails off again, Emond said. Global growth is projected to drop to 2.9 per cent this year from an estimated 3.4 per cent in 2022 and six per cent in 2021, the International Monetary Fund said last month.

This year “won’t be very different from 2022,” Emond said. “Two things are going to happen. Rates are going to have to rise a little to contain inflation, which is stubborn, and there will be an economic slowdown. In both cases, this is a headwind for the markets. So for me, 2023 will be a transition year that brings a lot of challenges, the same way 2022 did.”

Article content

Delisle cautioned against the “latent optimism” that has recently been buoying stock markets.

“Investors want to believe that central banks are going to be accommodating very rapidly,” he said. “When we look at the signals, with persistent inflation and a weakening economy, there is a risk that the market could be disappointed somewhat.”

Philip Authier of the Montreal Gazette contributed to this report.

ftomesco@postmedia.com