The fragility of global markets caused by soaring stock prices has opened the door to a correction that Quebec’s Caisse de dépôt et placement pension fund manager is ready to pounce on, CEO Michael Sabia said Wednesday.
“If a correction arrived to be honest with you, I would see that as a very significant opportunity,” he said during a news conference about its improved 2017 results.
The Caisse said it earned a 9.3 per cent return in 2017, ending a three-year streak of decreasing returns. The performance marginally surpassed its reference index and compared with a 7.6 per cent return in 2016.
Unlike the situation during the economic crisis of 2008-2009, the large institutional investor has the flexibility to move substantial capital between asset classes to benefit from a fall in stock prices, Sabia said.
Although economic growth is strong and largely synchronized around the world, he said markets are fragile, making them more susceptible to shocks from unexpected interest rate increases or a geopolitical crisis.
“Because of that fragility that we see in the markets today, we’re very focused on this fundamental principle of resilience so that we’re ready in the event that something does change in the markets,” he told reporters.
The U.S. faces the possibility of higher interest rates to curb inflation, he said, but urged the Canadian government to be “measured” in its response to lower U.S. corporate taxes or contentious trade disputes.
“I don’t think there’s an immediate need for significant reaction with respect to the Canadian tax system,” he said.
The federal budget is scheduled for Feb. 27 but Finance Minister Bill Morneau has said that the government has no plans to “act in an impulsive way” in response to tax cuts south of the border.
In response to questions from reporters, Sabia said the Caisse isn’t looking to invest in marijuana stocks or the Bitcoin, which he likened to lottery tickets.
Total Caisse assets as of Dec. 31 were $298.5 billion, up $24.6 billion in one year, while net deposits totalled $3.2 billion.
Its eight main clients received returns between eight and 10.9% last year.
Returns were $110 billion over five years for a 10.2% annualized return over the period. Net assets have increased by $122 billion since 2012, including $12.6 billion from its clients.
In 2014, the fund manager posted a return of 12%, marking the beginning of a three-year streak of decreasing returns. It finished 2015 with a return of 9.1% and 7.56% in 2016.
Equities did the heavy lifting last year, rising 13.6% to $149.5 billion, while fixed income was up 3.5% to $96.7 billion. Real estate increased 8.7% to $50.4 billion.
Real estate was the only portfolio that failed to exceed its reference index. However, Ivanhoe Cambridge CEO Daniel Fournier said it faced heavy competition from sovereign and international pension funds and the impact of the shared economy.
“A return of 8% cent is more than respectable in our sector for the years to come,” he said.
The Caisse said it has diversified its geographic exposure over the last five years by expanding global presence and more than doubling its exposure in growth markets.
Canada’s second-largest pension fund manager made $6.7 billion in new investments with Quebec’s private sector, which it said is the main driver of the economy and jobs. It is now a partner with more than 750 companies based in the province.