CDPQ Publishes Its 2024 Annual Report
CDPQ today released its Annual Report for the year ended December 31, 2024, titled “Investing for future generations”.
In addition to the financial results published on February 26, CDPQ presents an overview of its activities over the last year, which include:
- A presentation of CDPQ’s depositors and their respective net assets as at December 31, 2024
- A detailed analysis of the returns for the global portfolio and for the different asset classes
- A risk management report
- A portrait of CDPQ’s activities in Québec, including its main achievements to support company growth and projects that contribute to economic development, as well as a summary of its investments in Québec
- A section on governance, including reports from the Board of Directors and its committees covering audit, governance and ethics, investment and risk management, human resources management and compensation for senior management and employees, as well as compliance activities
- The Sustainable Development Report
- Our financial report and the organization’s consolidated financial statements
- Report on compliance with the Global Investment Performance Standards (GIPS).
The Annual Report Additional Information for the year ended December 31, 2024, was also published today.
ABOUT CDPQ
At CDPQ, we invest constructively to generate sustainable returns over the long term. As a global investment group managing funds for public pension and insurance plans, we work alongside our partners to build enterprises that drive performance and progress. We are active in the major financial markets, private equity, infrastructure, real estate and private debt. As at December 31, 2024, CDPQ’s net assets totalled CAD 473 billion. For more information, visit cdpq.com, consult our LinkedIn or Instagram pages, or follow us on X.
Take the time to read CDPQ's 2024 Annual Report here.
The Annual Report Additional Information for the year ended December 31, 2024, was also published today.
Recall, I already went over the 2024 results with Vincent Delisle, CDPQ's Head of Liquid Markets. You can read that comment here.
The annual report comes out later than the release of the results because it needs to be approved by the Quebec National Assembly.
It is beyond the scope of this post to go over the entire annual report, it takes at least a week to go over it in fine detail.
Still, I'd like to quickly go over a few things.
First, the message from Chair Jean St-Gelais:
In light of these achievements, the Board has a positive view of the 2024 financial year, during which CDPQ was able to improve its depositors’ financial health and position its portfolio well for continued success. On behalf of the members of the Board, I would like to thank all CDPQ employees for the commitment they demonstrate every day.
I will come back to this below because as always, CDPQ has some critics who claimed bonuses were outrageous this year.
I also noted this:
Throughout the year, the Board of Directors and its committees oversaw the implementation of CDPQ’s strategic orientations, as well as sound governance and the maintenance of the highest standards in all areas. We also ensured that the activities complied with the Act respecting CDPQ, as well as the depositors’ and its own investment policies.
There was obviously no mention of CDPQ being rocked by a major bribery scheme in India but I can assure you the Board had to shore up governance to make sure this never happens again.
Next, let's quickly go over CEO Charles Emond's message below:
Despite the turbulence, our net assets have grown by $133 billion over five years, reaching $473 billion at the end of 2024. Over this period, we generated $6 billion in value added and $17 billion over ten years. The results that CDPQ obtained over the last ten years have also helped improve the financial health of the plans of our clients: 48 depositors, each with their own investment policy and specific risk tolerance.
For 2024, the Québec Pension Plan, the pensions for more than six million Quebecers, posted a return of 11.0%. Our total portfolio generated a return of 9.4% over one year. Its performance was driven by our activities in the public equity markets, which stood out against indexes that are more concentrated than ever. Among other drivers, our private equity investments rebounded strongly and our infrastructure assets have once again delivered solid performance. The year proved to be more difficult in real estate due to our longstanding exposure to the U.S. office sector, which faces persistent challenges. Lastly, the rise in long-term rates weighed on our fixed income activities, which nevertheless present attractive prospects due to a high current yield. The financial health of our main depositors’ plans therefore improved in 2024.
Rising asset values and higher yields which lower future liabilities improves the financial health of CDPQ's depositors.
Next, let's look at 2024 highlights:
Next, I want to discuss long-term performance:
Important items worth noting so pay attention here:
- Over five years, the annualized weighted-average return on depositors’ funds was 6.2%. Over the period, the total portfolio outperformed its benchmark portfolio, which posted an annualized return of 5.9%, representing $6 billion in value added.
- Over ten years, the annualized return on the total portfolio was 7.1%, surpassing the benchmark portfolio’s 6.5% return. This has enabled the portfolio to generate $17.1 billion in value added during this time.
Now, why am I bringing this up? Because critics focused on the fact that CDPQ generated 9.4% last year, below the benchmark portfolio’s 11.8% gain or -$10.1 billion in value added.
As I've stated many times on my blog, all of Canada's large pension investment managers underperformed their benchmark last year mostly owing to the relative performance of private equity relative to a public equity index dominated by Mag-7 dynamics.
This is why it's more important to look at 5 and 10-year annualized returns relative to benchmark to gauge value added and keep in mind, compensation is based mostly on 5-year relative performance.
I think a few people commenting on Julien Arsenault's La Presse article got it all wrong here, focusing way too much on one-year return.
I also noted his in the annual report:
It is also worth noting the significant impact that the customized rate exposure product—a tool depositors have been using increasingly in the last two years—had on the overall portfolio’s performance. This product allows them to be more exposed to the interest rate factor, in particular to ensure a better match with their long-term liabilities and greater diversification of their funds. The result is more stable funding of their plans, but the return on funds is more sensitive to rate fluctuations.
With interest rates rising as they have in recent years, the use of this product limited the performance of CDPQ’s total portfolio (see Table 21, page 42). Conversely, depositor plan liabilities saw a general decrease, which, combined with the return on assets, improved their financial health.
Keep all this in mind as you analyze results properly.
Next, have a look at CDPQ's asset mix and how it shifted in 2024 relative to the previous year:
The outperformance in all the Public Equities mandates was particularly striking last year and I doubt they will be able to keep that up this year but I'm rooting for them.
And Private Equity's 17.2% return underperformed its benchmark return of 20% but again, this is an exceptionally strong performance and benchmark was driven by a handful of tech stocks last year.
The same goes for Infrastructure which gained a solid 9.5% last year, underperforming its benchmark which gained 15% (lots of beta in that benchmark!).
Anyway, the main thing to remember is even though CDPQ didn't outperform its benchmark last year, it posted a solid year.
I would invite you to read the entire annual report here to fully appreciate all the activities at the organization.
Lastly, on compensation which is a hot topic in the media, some tables:
Again, compensation is based mostly on five-year results and yes, all these people are extremely well compensated not just by Quebec standards but by any standard and they know it.
As Derek Murphy once told me when I was working at PSP: "This is the best gig in the world".
Tell me about it, at least he was honest about that.
By the way, I will give credit to Julien Arsenault of La Presse for writing an article earlier this month where he went over the huge severance packages given out at CDPQ over the last two years.
But even there, I caution my readers, the longer someone is at an organization and the higher up they are, the more expensive their severance package will be.
The table below is available through CDPQ's answers to access to information (only available in French):
Helen Beck and Marc Cormier obtained the highest severance packages in 2023 and 2024 because they were there the longest and had very senior positions.
Alright let me end it there, it depresses me seeing how much money all these people are making even if it's justified.
Below, CNBC’s Steve Liesman and Cleveland Fed President Beth Hammack joins 'Squawk Box' to discuss the state of the economy, impact of policy uncertainty, recession concerns, the Fed's inflation fight, rate path outlook, and more.
Update: Jacob Serebrin of the Montreal Gazette reports big bonuses for CDPQ Infra executives despite REM outages:
Despite the Réseau express métropolitain suffering repeated service outages, executives at the Quebec public pension fund subsidiary that built and manages the system received hundreds of thousands of dollars in bonuses last year.
Jean-Marc Arbaud, the president and CEO of CDPQ Infra, received “variable compensation” of $775,000 in 2024, the CDPQ disclosed Thursday in an annual report, bringing his total salary for the year to more than $1.25 million.
The driverless light-rail system suffered several service outages during the winter of 2024 and it has continued to struggle this winter, with a series of disruptions following major snowstorms in February.
The CDPQ said the compensation paid to executives at CDPQ Infra has declined this year, in part, due to the REM’s service issues.
In 2023, Arbaud was paid $1,784,930, including a bonus of $1.3 million.
“As for Mr. Arbaud’s compensation, it reflects the technical issues and service challenges experienced by the REM, for which clear solutions and commitments were demanded from suppliers Alstom and AtkinsRéalis,” spokesman Jean-Benoît Houde said in an email.
“That said, Jean-Marc Arbaud’s variable compensation also reflects the entirety of his work, including major progress in the construction of the nearly 70 km network that will ultimately completely transform mobility in Greater Montréal and become the largest automated metro line in the world.”
Arbaud is also working on the CDPQ’s tram project in Quebec City and led the winning proposal for a high-speed train between Québec City and Toronto, Houde added.
In February, Transport Minister Geneviève Guilbault to order the REM to put shuttle buses in place full-time until the service became more reliable.
Describing the issues as “unacceptable,” the REM suspended operations outside of rush hour for more than two weeks, in order to do maintenance, and offered free fares for three weeks in late February and early March.
Days after non-rush hour service was suspended, CDPQ CEO Charles Emond defended Arbaud’s work, saying that without him, the REM, which Emond maintains was built faster and at a lower cost than other similar systems, wouldn’t exist.
“It’s important not to throw away the baby with the bathwater. In the last two, three weeks, the service wasn’t there, but our operators recognize our responsibilities,” Emond said at the time. Arbaud wasn’t the only CDPQ Infra executive to get a bonus in 2024.
Daniel Farina, the general manager of CDPQ Infra, received $570,000 in variable compensation, bringing his total salary to $998,353, while Sophie Lussier, executive vice-president and head of corporate services, organizational performance and secretariat at CDPQ Infra received variable compensation of $450,000, bringing her total pay to $857,992.
Julien Hurel, the vice-president responsible for the REM project at CDPQ Infra, received $353,000 in variable compensation, bringing his total pay to $715,538.
Read more here. My take? Arbaud earned every penny of his compensation, most of the people under him however are overpaid.
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