Update as at June 30, 2013 - 10.5% annualized four-year return - 4.5% six-month return

MONTREAL, Aug. 16, 2013 /CNW Telbec/ - The Caisse de dépôt et placement du Québec provided an update today on its performance as at June 30, 2013. At the end of this period, the average annual return over four years was 10.5%, generating net investment results of $58.5 billion. For the first six months of 2013, the weighted average return on depositors' funds was 4.5%. Net assets grew to $185.9 billion, up $9.7 billion from $176.2 billion as at December 31, 2012.

Over the four-year and six-month periods ended June 30, 2013, the Caisse outperformed its benchmark portfolio.

Caisse overall return vs. benchmark portfolio return
A chart is available on the Caisse's website

"Two trends are shaping the investment environment," said Michael Sabia, President and Chief Executive Officer of the Caisse. "First, the global economy is showing signs of returning to greater "normalcy" as the United States enters a more solid growth phase and the Chinese economy slows, but to a pace that is more sustainable over the long term. However, monetary policies continue to drive the value of many asset classes higher. In this environment, an investor like the Caisse needs to be very selective when it deploys capital.

"Accordingly, in the first six months, we made targeted real estate investments in the United States and successfully launched our absolute-return Global Quality Equity portfolio. This portfolio will be an increasingly important component of our strategy in the years to come.

"Over all, we reported a 4.5% return for the first six months of 2013," Mr. Sabia added. "As we have said repeatedly, in our business it's the long term that counts. Over a four-year period, we have delivered a very solid 10.5% return, outperforming our benchmark portfolio and exceeding our depositors' long-term needs."

UPDATE ON OUR ACHIEVEMENTS

Since early 2013, the Caisse has continued to deploy its strategic plan in Québec and elsewhere in the world. The main components are as follows:

New investment strategy implemented

  • Launch of the Global Quality Equity portfolio with assets of close to $9.5 billion as at June 30, 2013;
  • Investment of $1.2 billion under the Private Equity relationship-investing mandate as at June 30, 2013;
  • Investment of $4.2 billion in the Real Estate, Private Equity and Infrastructure portfolios, including $500 million in the Invenergy wind farm portfolio (11 projects in the United States and two projects in Canada, including the Le Plateau wind farm in Gaspésie).

Presence in Québec
$1.5 billion of new commitments and investments, including:

  • Creation of the Sodémex Développement fund to support the growth of Québec natural resources companies in the development phase ($250 million);
  • Launch of phase II of the Capital Croissance PME fund to support the development and growth of small businesses throughout Québec, in partnership with Desjardins Group ($230 million);
  • Contribution to the financing of a Vancouver acquisition by Cogeco Cable ($50 million);
  • Involvement in the financing of the Vents du Kempt Wind Power Project in the regional county municipality of Matapédia, Québec ($50 million).

Growth of activities in the real estate sector

  • Acquisition, in partnership, of a portfolio of 27 multiresidential complexes in the United States (US$1.5 billion);
  • Acquisition, in partnership, of the Woolgate Exchange office building in London ($400 million);
  • Acquisition of Wells Fargo Center in Seattle (US$390 million);
  • Acquisition of AIMCo's 50% stake in Place Ville Marie ($400 million), which will initiate a plan to revitalize downtown Montréal;
  • Acquisition of a 50% interest in the Carrefour de l'Estrie shopping centre (more than $175 million).

PERFORMANCE HIGHLIGHTS

"The first six months of 2013 were marked by rising interest rates and diverging stock market performances, which reflect in part differing economic situations," pointed out Roland Lescure, Executive Vice-President and Chief Investment Officer. "In the United States, the stock market performed very well, reflecting the renewed strength of the economy. Emerging markets recorded a significant decline of almost 5%, as a result of rising interest rates and disappointing economic performances. With a six-month return of about -1%, the Canadian market reflected the less favourable outlook for emerging market economies and lower prices for certain commodities."

NET INVESTMENT RESULTS

Results for four years and six months
A chart is available on the Caisse's website

Over a four-year period, all asset classes contributed significantly to the net investment results of $58.5 billion: $29.1 billion for Equity, $14.1 billion for Fixed Income and $12.0 billion for Inflation-Sensitive Investments. In the first half of 2013, net investment results totalled $7.8 billion, and depositors made a net contribution of $1.9 billion. Net investment results come mainly from the Equity portfolios, which generated $6.3 billion of the $7.8 billion. The Inflation-Sensitive Investment portfolios returned $1.7 billion. Rising interest rates caused the Fixed Income portfolios to return $-0.6 billion. Even so, this asset class outperformed its benchmark index.

RETURNS AS AT JUNE 30, 2013

Returns by asset class and differences in relation to the benchmark index

       
  4 years   6 months
Asset class Return Index Difference   Return Index Difference
  (%) (%) (%)   (%) (%) (%)
               
Fixed Income 6.5 5.1 1.4   -0.9 -1.6 0.7
Inflation-Sensitive Investments 14.3 11.7 2.6   6.5 7.2 -0.7
Equity 11.6 10.8 0.9   7.7 7.6 0.1
       
Caisse return(1) 10.5 9.1 1.4   4.5 4.2 0.3
(1) The total includes the Hedge Fund, ABTN, Asset Allocation and Commodities portfolios, Overlay Strategies and cash activities of the individual funds.

Over four years, the Caisse earned a 10.5% average annual return, versus a 9.1% return for its benchmark portfolio. All the asset classes outperformed their benchmark indexes. The 1.4% positive difference - due mainly to the Bond, Private Equity, Infrastructure and Real Estate Debt portfolios - represents value added of $7.4 billion. The Caisse recorded a 4.5% return for the first six months, outperforming its benchmark portfolio.

ASSET ALLOCATION
As at June 30, 2013, the Equity class represented 47% of the overall portfolio. Fixed Income and Inflation-Sensitive Investments represented 35% and 15% of the portfolio, respectively.

RISK MANAGEMENT AND FINANCIAL STABILITY
The Caisse's available liquidity of $38 billion in its overall portfolio remains robust and ensures that commitments can be met. The portfolio's overall risk has declined slightly since December 31, 2012, as a result of the shift in focus from the Global Equity portfolio to the less-risky Global Quality Equity portfolio. Credit, counterparty and liquidity risks remained substantially unchanged from their levels as at December 31, 2012.

OPERATING EXPENSES
The amount of operating expenses and external management fees is in line with forecasts and is at the same level as in 2012, at less than 18 cents per $100 of assets under management.

ABOUT THE CAISSE DE DÉPÔT ET PLACEMENT DU QUÉBEC
The Caisse de dépôt et placement du Québec is a financial institution that manages funds primarily for public and private pension and insurance plans. As at June 30, 2013, it held $185.9 billion in net assets. As one of Canada's leading institutional fund managers, the Caisse invests in major financial markets, private equity, infrastructure and real estate globally. For more information: www.lacaisse.com.


Global economic and financial context
1st half 2013

ECONOMIC
OUTLOOK

In the first half of 2013, the global economy grew at a moderate rate of about 3.0%. Some developed countries saw their economies improve significantly, notably the United States and Japan, mainly because of aggressive monetary easing. Also, the European economy showed signs of stabilizing in the second quarter of 2013. In most emerging markets, economic growth slowed as these countries encountered numerous challenges.

The performance of the equity markets diverged markedly across countries in the first six months of the year. The U.S. and Japanese stock markets recorded remarkable gains while the markets declined everywhere else. In Canada, the TSX Index lost 0.9% (including dividends), mainly because of falling commodity prices. The MSCI Emerging Markets Index slid almost 4.7%. Lastly, the Euro Stoxx 50 Index managed to end the first half down only 0.4%, sustained by the European Central Bank (ECB) President's pledge that he will do whatever it takes to preserve the eurozone.

In late May and in June, long-term U.S. government bond yields spiked after the Fed announced that it might begin tapering the pace of its asset-purchase program in the fall. The announcement also pushed up yields on the long-term debt of most other developed countries.

Remarkable stock market perforrmance
in the U.S and Japan
Main Stock market indexes (including dividends)
A chart is available on the Caisse's website

United States 
Buoyed by the Fed's ambitious quantitative easing program, the U.S. residential real estate market entered a recovery phase. Higher housing prices, combined with a strong performance by the U.S. stock market, enabled households to continue repairing their balance sheets. Public finances also improved considerably. With the tax increases that took effect at the start of the year and the automatic spending cuts imposed by the budget sequester in March, the federal budget deficit fell from about 9.0% of GDP two years ago to roughly 4.2% over the past 12 months. Even more importantly, the U.S. economy is coping fairly well with the significant tightening of fiscal policy, owing to its dynamic private sector. Households have been able to increase their spending at a reasonable rate despite a heavier tax burden. The housing and energy sectors also contributed to the economy's growth. There are also indications that investment is beginning to recover. In this context the Fed stated at the end of May that, if the economy continued to perform as expected, it could begin scaling back its asset purchases in September, causing long-term U.S. government bond yields to spike by 75 basis points.

U.S leads global interest rates higher
Weekly average of 10-year interest rates since early 2013
A chart is available on the Caisse's website

U.S makes progress in controlling its debt load
Household debt and government budget deficit
A chart is available on the Caisse's website

Japan
Japan's economic growth accelerated strongly in the first quarter as a result of fiscal and monetary stimulus. Moreover, the monetary stimulus was increased with the change in regime announced by the Bank of Japan's new Governor. Reliable economic indicators, such as the Tankan survey, suggest that growth will remain strong for the rest of the year. The authorities' more proactive approach enabled the Japanese stock market to record an excellent first half, with the Topix Index rising by more than 30.0%.

Europe
The situation remains difficult in Europe. After a record six consecutive quarters of decline, real GDP in the eurozone exhibited signs of stabilizing in the second quarter of 2013, with Germany and France both growing. In the majority of the peripheral countries, the recession continued in Q2, but at a slower pace. The level of economic activity in these countries is substantially below the peak attained prior to the financial crisis.

Although the ECB has maintained an accommodative monetary policy for some time and has even eased further in recent weeks, credit growth remains negative in the most heavily indebted countries. In the so-called peripheral countries, including Italy and Spain, the private sector must borrow at far higher interest rates and on much stricter conditions than in Germany and France. In short, the transmission mechanism of monetary policy is not working properly. Moreover, even though some countries have been given more time to reach their budget targets, austerity measures continue. In brief, Europe is far from establishing the conditions for a strong and sustained recovery.

Emerging markets 
After accelerating at the end of 2012, economic growth in emerging markets slowed again. The growth rate now stands at about 5.0%, or roughly the average pace of the past year. This subdued growth rate is due partly to weak external demand, especially from Europe, which is reflected in lower exports. It is also the result of various internal factors.

In the case of China, more moderate growth is also attributable to the new leaders' intention to take the necessary steps to reorient the economy. They stated that they were prepared to accept slower growth (the target being 7.5% for 2013) to give themselves time to put in place a model based more on consumption and less on fixed investment. To foster the transition, they also plan to impose stricter oversight on the banking sector and to liberalize interest rates.

Weaker economic activity in China had an impact on growth in the other emerging markets. In recent years, emerging market economies have significantly increased their trade linkages. The slowdown in Chinese goods production and fixed investment has especially affected commodity producers such as Brazil. The performance of Brazil - like that of other countries - also suffered because of significant rigidity in key markets and an infrastructure deficit.

Emerging markets: moderate economic growth
Annual GDP growth in the BRIC countries
A chart is available on the Caisse's website

Québec and Canada
Over the past few quarters, Québec and Canada entered a period of modest growth characterized, amongst other things, by the need to focus their economies more on exports and less on domestic demand. Importantly, the latest external-trade developments are positive: improvements in the U.S. private sector, combined with the slight depreciation of the Canadian dollar, have increased demand for products manufactured in Québec and Canada, which is favorable for exports.

The TSX Index lost a little ground in the first half, primarily because of low prices for commodities, especially gold. Long-term interest rates were up almost 65 basis points in the wake of higher rates in the United States.

Two economies to be reoriented from
domestic demand to exports
A chart is available on the Caisse's website

Conclusion
Global economic growth continues to be modest but many countries have made substantial progress in addressing the problems that have beset their economies in recent years. The United States is gaining control over its debt, Japan has finally introduced a credible monetary policy to end its deflationary spiral, some European countries have put in place appropriate structural reforms and China has begun to overhaul its financial system and shift its economy more to the private sector. In this context, 2013 appears to be a year of transition toward a more robust global economy with a higher rate of growth. But, for that to happen, strong policy implementation must continue in many countries, especially in the eurozone and emerging market economies. 

SOURCE Caisse de dépôt et placement du Québec




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