CDPQ Targets $100 billion in Quebec Assets by 2026
The Caisse de dépôt et placement du Québec intends to fully press the accelerator pedal to increase its investments in Quebec. The institution will announce on Monday a new target of $100 billion in Quebec assets for 2026, which would represent an increase of more than a quarter compared to today.
Construction of student residences and rental housing, investments in telecommunications towers, injection of capital into local companies that want to buy abroad: the Caisse is considering several avenues to achieve this objective.
"It's not a figure that I pull out of my hat like that: it comes from our strategic planning", assured in an interview with La Presse Charles Emond, its president and chief executive officer, who exposed for the first time this new target.
This announcement comes at a time when la Caisse's presence in the Quebec economy is being scrutinized more than ever. The pension fund manager has come under criticism lately due to the decline in the number of Quebec companies in which he has a direct or indirect stake. Their number has slipped from 756 to 548 over the past four years.
The relative weight of investments held by the Caisse in Quebec – $78 billion – also fell compared to its total assets, which amounted to $392 billion as of June 30. Nothing is wrong in these figures, recognizes Charles Emond. But he believes that other indicators make it possible to measure in a much more concrete way the real contribution of the institution to the economy of the province.
"The Caisse's assets relative to the economy, 10 years ago, were $60 per $1,000 of gross domestic product (GDP), and that figure has doubled," he points out. he. That's down to $120 per $1,000 of GDP."
Telecoms for CDPQ Infra
No other pension fund manager elsewhere in the world invests as much in its local economy, argues its leader. And to accelerate the pace between now and 2026, la Caisse will prioritize two very tangible asset classes: infrastructure and real estate. Several new sectors are being studied, says Charles Emond.
"For me, the definition of infrastructure is something that changes people's quality of life, that increases productivity, and so in that sense, infrastructure has a broader definition than what people can sometimes imagine."
--Charles Emond, President and CEO of CDPQ
The mandate of its subsidiary CDPQ Infra, known for its Réseau express métropolitain (REM) project, could be expanded to include highway and telecommunications projects, in particular. "Cell [phone] towers, there's something to do there," says Emond. They are assets, you rent them out and you connect people even more in certain regions."
Charles Emond confirms that the institution is still in discussions with Quebec to study various infrastructure projects — including a public transit link south of Montreal.
"It's an interlocutor who has an interest, the Government of Quebec, that's for sure, because basically, it's like the REM, if it sees something where it thinks we can be useful, we will consider it, he says. Major projects that will take Quebec elsewhere and where we can obtain a return that is excellent for our depositors."
Affordable Housing
In any case, Charles Emond sees a direct interconnection between the infrastructure segment and the real estate segment. “Real estate follows infrastructure. It converges, those two things."
For example, more than $5 billion in real estate projects of all kinds have already been built by various developers around future REM stations over the past four years, he notes, for a total of 20 million square feet. The Caisse believed that this figure would be reached in 10 years.
The institution could broaden its horizons in real estate and invest more in certain segments where it is less present today in Quebec with its subsidiary Ivanhoé Cambridge.
“We can do all sorts of things at the multi-use complex level with our shopping centers, even do affordable housing with a definition of affordability where there is a return to be made for us, explains Charles Emond. Student residences are an asset class that is extremely interesting for us worldwide, but Montreal is also an extraordinary university city. Is there potential for signature projects?"
350 Acquisitions Outside Quebec
If the loss of Quebec headquarters like that of RONA Inc. has made the headlines in recent years, Charles Emond recalls that many Quebec companies have also shopped abroad. Companies in which the Caisse is a shareholder, such as Demers Ambulances, CAE, Cogeco, KDC and Previan, have thus made 350 acquisitions outside the province over the past five years. One per week, on average.
"Quebec companies that buy companies abroad, that's the home run every time, because you tick a lot of boxes," he says.
"The business here is getting stronger. The business here is getting bigger, harder for a competitor to swallow one day. It is exported abroad. You export Quebec and you import the yields."
--Charles Emond, President and CEO of CDPQ
The Caisse intends to maintain and even increase as much as possible its presence in the capital of large and small Quebec companies — a strategy that will help protect them against foreign takeover attempts, believes its president.
"You have to remember that sometimes the best defense is the offense," he said. When the company performs well, when the company grows, we will be there. Then when, in the past, there were more delicate situations, for example when SNC-Lavalin lived through a period of great vulnerability, then again, we had things to do. We were there, we remained present."
"Detailed" Monitoring of Head Offices
Charles Emond reveals that the Caisse's teams are carrying out an "extremely detailed analysis", with a precise strategic plan, to protect each major head office of Quebec inc. Between 75 and 100 companies are on this list, we learned.
“We plan years in advance what the issues are and we are already working on it with companies, he explains. Is the shareholding low? Is the performance lower? Is there a player emerging in the world in the industry who is an acquirer? Are there any poison pills? Is there a governance regime?"
The Caisse has also adopted a new strategy to make more "meshes" between companies in which it holds a stake, underlines Charles Emond. The institution helped make 40 of these "cross-sells" last year, which benefited some Quebec companies like Lion Electric and Plusgrade.
REM: People Want to "See it"
Despite the delays and some cost overruns, the president of the Caisse de dépôt says he is absolutely proud of the REM, a 67-kilometre automated light rail network whose first branch between the South Shore and the city center must enter service. next spring. Charles Emond believes that public opinion will change for the better once the service is launched. “I think there may be a pivot. As Yvon Deschamps said, people no longer want to know it, they want to see it, they want to experience it." He also assures that he does not harbor any resentment over the death of the "REM de l'Est", the second phase of the REM that the Quebec government had asked the Caisse to develop. Quebec withdrew the file from the hands of the institution last May due to too much opposition from citizens and the City of Montreal in relation to certain aspects of the route. “There is no bitterness. They decided for other considerations that they'd rather not have the overhead structure, and that's really their prerogative." The Caisse received a check for $100 million from Quebec to reimburse all the planning work done by CDPQ Infra in this file.
Let me begin with the REM since I've been reading the dumbest articles in the press, criticizing delays.
Now is not the time to open up the REM, the spring is better and the project is going to be amazing, never mind the critics.
The cost overruns are minimal and there isn't any multi-billion dollar greenfield infrastructure project in the world of this scale that doesn't run into some cost overruns.
What you should be asking yourselves is if the government was undertaking this project, how much more expensive would the cost overruns be? The answer is a minimum 3X, if not 10X.
I know for a fact Jean-Marc Arbaud, President and Chief Executive Officer of CDPQ Infra, and his team have done an outstanding job on the REM.
Mr. Arbaud isn't perfect but when it comes to this project, he has done great work and so has his team.
Why isn't he perfect then? Well, I don't think he has the right team to export the REM to the rest of the world and that's more a function of the Caisse becoming too Quebec Inc. for my taste, something I'm seeing across Quebec ever since the CAC got into power.
But when it comes to delivering the project on time and mostly on budget, I give Mr. Arbaud and his team an A+.
What else? I'm sick and tired of the utter nonsense the media publishes on the REM de l'est, the REM East project which the City of Montreal foolishly torpedoed.
In my opinion, and this is my blog and my opinion only, Valerie Plante is the worst mayor ever and her administration hasn't done any significant project to bring Montreal to the international level it deserves.
The $7 billion REM project which was former CDPQ CEO Michael Sabia's brainchild and baby is the most significant infrastructure project in Canada in decades and that's not thanks to the City of Montreal and all these environmental groups who were criticizing it.
Still, Jean-Marc Arbaud and his team conducted many public consultations trying to appease everyone so when I read these dumb articles in Le Devoir and elsewhere accusing CDPQ Infra of not planning for the REM de l'est, it aggravates me.
A friend of mine who knows this project intimately well, was even more aggravated, and shared this after reading that article:
The level of BS is at maximum here. Very clear now that the unions were against the REM de l’est because it is automated. Trains with conductors are a total embarrassment. It’s like going back to the horse and buggy days.
The concept that CDPQ Infra does no planning is full of crap. With a 200 years concession, there was a tremendous amount of planning and consultation. The problem is that, at some point, you have to start listening to what the people want not to what the rot that grows at the City of Montreal wants.
You have to listen to what the people want and ignore the City of Montreal and all its dysfunction.
Sorry, just blowing off some steam. These guys take the cake. They got their project back. They’ll spend a few billion and get nothing done, the good old Québécois way.
Plante can’t even build proper bike paths and people expect her to build a modern, efficient metro system.
He may be harsh but he's 100% right and we need to stop listening to the unions and City of Montreal and listen to what the majority of the citizens want, a modern and efficient transportation system which is running on clean energy and cuts commuting times down significantly.
What is going to happen, the REM will start operating and the people living in the East End of Montreal will quickly realize that the City of Montreal screwed up and they should have built the REM de l'est.
Unfortunately, by that time, it will be too late.
Alright, enough of that.
Back to Charles Emond and this article in La Presse.
Charles is in a unique position among the large Canadian pension fund CEOs because CDPQ has a dual mandate -- to maximize returns without taking undue risks and to invest in the Quebec economy.
That means CDPQ has to find ways to support and promote Quebec's public ad private companies all while it maintains its focus on performance and attaining the long-term actuarial target rate-of-return.
Now, I'm personally not a big fan of large pension funds investing locally, be it in Quebec or in Canada.
I know Peter Letko and Daniel Brosseau, cofounders of Montreal-based LetkoBrosseau, have been very vocal criticizing large Canadian pension investment managers for investing less and less in Canadian companies but they're mostly wrong and simply don't understand that Canada's large pension investment managers invest enough domestically and need to invest more globally to meet their future liabilities.
Still, I'll admit that I had a conversation with Michael Sabia at a private gathering a few years ago right after he retired and he told me that CDPQ is making great returns off its Quebec portfolio "precisely because we know these companies very well, they're right in our backyard."
If you look at my conversation with CDPQ's CEO Charles Emond covering their mid-year results, we didn't get into the Quebec portfolio in much detail but I suspect he would state the exact same thing.
In fact, the mid-year press release stated the following:
The first six months were active for CDPQ in Québec, with some thirty investments and commitments, including transactions stemming directly from Ambition ME, a suite of financing solutions and support services to help Québec mid-market companies grow. One example is the investment in Bouthillette Parizeau, an engineering firm with numerous projects that provide solutions to fight climate change. CDPQ also invested in Laval-based COREALIS Pharma, a company that has become the leader in its sector in North America.
Also of note is the investment in Innocap for the acquisition of HedgeMark, a BNY Mellon company, thereby creating the world’s largest alternative investment platform. The first half of the year also saw CDPQ acquire, alongside equal partner Fonds de solidarité FTQ, a 65% stake in Bonduelle Americas Long Life, which specializes in the processing and marketing of vegetables, thereby keeping the company’s headquarters in Brossard.
A key step was achieved for the Réseau express métropolitain (REM), with the electrification of the South Shore branch, representing the 16-kilometre section between Montréal and Brossard. More recently, the REM began conducting test runs, with cars crossing the Samuel-De Champlain Bridge, a major project milestone. For the next phase, PMM, the consortium responsible for operating and maintaining the network for the next 30 years, will take over to conduct the tests and trials required for commissioning.
Lastly, Ivanhoé Cambridge and its partners invested close to $200 million in Haleco, a unique project at the intersection of Old Montréal and Griffintown, which stands out for its mixed-use approach (residential, commercial and offices) and will include community housing to create a quality neighbourhood catering to residents’ needs. The project also plans to obtain LEED Platinum certification and incorporates a low-energy design. Ivanhoé Cambridge also rolled out initiatives supporting downtown Montréal’s economic recovery and dynamism, including unveiling The Ring at the Esplanade PVM, and the launch of Nouveau Centre, an unparalleled offering of summer experiences in the heart of the city.
No doubt, there is money to be made in Quebec and I think Kim Thomassin, Executive Vice-President and Head of Québec, and her team are doing an outstanding job.
But what I find interesting about this new target -- $100 billion in assets by 2026 -- is the strategic focus.
I agree with Charles Emond, there are tremendous opportunities in digital infrastructure and mixed-use real estate, as well as niche real estate like student housing.
Montreal is home to some of the best universities in the country and yet our student housing accommodations are sub-standard compared to other cities like London, England.
There are great opportunities to work with developers there and this sector of real estate is recession-proof which is an added advantage.
As far as as digital towers, CDPQ invests in cell towers all over the world, like other large Canadian pension funds, so why not invest more at home?
What else? Maybe it's time CDPQ takes a closer look at investing in nuclear energy in Quebec and embarks on an ambitious project there.
I posted a CNBC article on Linkedin over the weekend showing how venture capitalists in Silicon Valley and other tech hubs are investing money in nuclear energy for the first time in history.
Top funds like Brookfield are investing heavily in nuclear energy, seeing a new dawn there, and it's going to play a key role in meeting Canada's net-zero goals.
I'm a huge believer in nuclear energy, wind and solar projects are fine but unless the world goes nuclear, we can forget about reaching our net-zero goals by 2050.
Alright, I've stated enough, please remember these are my opinions.
Charles Emond is the CEO of CDPQ, he has to talk up Quebec Inc, which is fine and part of his job.
When I analyze pensions, I analyze the long secular trends and performance, and whether they're well placed to meet the future liabilities of the plans they manage money for.
When I look at Quebec, there are great companies that will thrive with or without CDPQ's support (my all time favorite remains Couche-Tard) but it's nice to have the support and knowledge of CDPQ behind you.
So yeah, CDPQ can meet its $100 billion goal of Quebec assets in 2026 as long as the global recession isn't too bad which I'm afraid it will be, but let's not lose sight of what CDPQ is ultimately there for, to provide all Quebecers with safe, reliable retirement income for the rest of their lives investing in private and public assets all over the world.
Lastly, a word of caution to Quebec leaders running many quasi-government organizations, please take diversity, equity and inclusion at all levels of your organization very seriously, we are heading back to the darker days of Quebec Inc and this isn't a good thing.
And here I'm not targeting CDPQ which is on the right path but can still improve D, E&I at all levels of its organization.
I see my wife teaching newly landed immigrant kids from all over the world who want to learn and be part of our society. Quebec’s population is changing and if we want to retain our top talent, our organizations have to do a lot more to make the right opportunities available to them.
Alright, c'est assez de placotage.
Below, a quick clip on my favorite Quebec company, Alimentation Couche-Tard (great stock to own over the long run for conservative investors). Also, an older (2020) interview with Alain Bouchard, one of Couche-Tard's cofounders (interview is in French).
There are plenty of other great companies in Quebec, public and private, and CDPQ is helping many of them expand their global footprint, making important investments and yield in the process.
Update: Stéphane Rolland of the Canadian Press reports Caisse de dépôt's pension payouts will be higher than contributions in 2024:
With the population aging, the Caisse de dépôt et placement du Québec is approaching the point where it will pay out more in pension benefits than it receives in premiums. But chief executive Charles Emond says Quebecers have “much more money” than necessary in their pension investments.
“There’s no worry because today there is much more money than we need for the obligations of these plans,” Emond said Monday during a speech to the Canadian Club of Montreal.
The Caisse manages a portfolio of 46 depositors linked to the Quebec government, including the Quebec Pension Plan and the pension plans of public service workers.
In 2024, the institution will have to dispense “slightly” more in benefits than it receives in premiums, Emond said in response to a question from Mélanie Dunn, chief executive of Cossette. It will be the first time this happens since the CDPQ was founded in 1965.
“I don’t want this to be the clip of the day,” Emond joked. “We don’t have to worry — it’s only one per cent of assets as of 2032.”
The Caisse uses the earnings of its portfolio to make up the difference between its benefits and premiums, Emond told journalists after the presentation.
“At a certain point, people age, there are more benefits paid out than workers paying into it. … It’s minor. It means it’s the earnings of the Caisse on $400 billion in assets that finance these programs.”
Emond said the earnings from investments are “amply sufficient, and already there’s enough money in the bank to continue for a long, long time. Pensions are not at any risk at all.”
In his speech, Emond said the Caisse intends to increase the scale of its investments in Quebec to $100 billion by 2026, compared to $78 billion now.
Asked about it, he said he did not feel pressure to increase Quebec investments. “In 10 years, our presence (in Quebec) has doubled,” he said. “Our assets in the last three years have increased 20 per cent. We’re continuing our work. When we look at the trend, it’s been there for a long time.
“Quebec’s economy is much more diversified than other economies. In that sense, for us, it’s an asset as an investor because we can invest at home while diversifying.”
Also, on Tuesday, December 6, CDPQ posted a press release stating it has become the first Canadian pension fund to adopt the CFA Institute Asset Manager Code:
CDPQ today announced its compliance with the CFA Institute Asset Manager Code™ (the Code), becoming the first Canadian pension fund to achieve this. The Asset Manager Code clearly outlines the ethical and professional responsibilities of firms that manage assets on behalf of clients. For investors, the code provides a benchmark of ethical conduct they should expect from asset managers. By adhering to the code, CDPQ is adopting a shared framework that allows clients to quickly identify organizations that follow a common foundation of ethical principles.
“As an institutional investor, CDPQ continuously improves its governance rules based on industry best practices. Integrity and responsibility are central to how we create value for our depositors and our communities,” said Maarika Paul, Executive Vice-President and Chief Financial and Operations Officer at CDPQ. “Adopting CFA Institute standards is another step in demonstrating CDPQ’s leadership on best governance practices.”
The Asset Manager Code is grounded in the ethical principles of CFA Institute and the CFA Program, and requires that managers commit to the following professional standards:
To act in a professional and ethical manner at all times
- To act for the benefit of clients
- To act with independence and objectivity
- To act with skill, competence, and diligence
- To communicate with clients in a timely and accurate manner
- To uphold the rules governing capital markets
"It is at the core of our mission to advance ethics, professional standards of practice, and market integrity in the investment management industry,” said Karyn Vincent, Senior Head, Global Industry Standards, CFA Institute. “We applaud CDPQ for adopting the code, displaying a steadfast and tangible commitment to professional ethics, and putting investors as well as stakeholders first. This is in addition to CDPQ being compliant with the Global Investment Performance Standards (GIPS®) for more than 20 years—another sign of CDPQ’s commitment to following the highest industry standards.”
More than 1,000 organizations worldwide claim compliance with the Code, including Ariel Investments, BlackRock, Janus Henderson Investors, J.P. Morgan Asset Management, Afore XXI Banorte, BBVA Asset Management Mexico, Credicorp Capital Asset Management, Itaú Unibanco Asset Management and Principal Afore. (View the full list.)
Well done, hopefully other large Canadian institutional investors will follow CDPQ and announce their compliance with the CFA Institute Asset Manager Code™.
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