With the Caisse, it’s big premiums, small returns

Are Caisse de depot et Placement du Québec (CDPQ) portfolio managers up to the bounty? I invite you to draw your own conclusions based on the facts below.

While the Caisse de dépôt et placement lost the astronomical sum of $25 billion in 2022, it rewarded its employees by paying them $193 million in “variable compensation” bonuses, including $11 million dollars to their top six executives.

In order to justify the size of these large bonuses, the Caisse insisted on the fact that the calculation of the said “variable remuneration is not just over 2022, but over 5 years” of the total return. And, we add, ‘added value’, which is the difference between the Caisse’s return and its benchmark.

The higher you are in the hierarchy, as is the case with CEO Charles Emond and his five senior management colleagues, the more the overall performance and added value component counts when calculating the bonuses to be paid out.

Comparison

To fully “appreciate” the performance of the Caisse’s portfolio managers, there is nothing better than comparing them to those of Canada’s other three major funds, namely TEACHER’S (Ontario Teachers’ Pension Plan), OMERS (Pension Plan Ontario Municipal Employees ), CPP investments (Canada Pension Plan Fund).

Of these four major public pension funds in Canada, our Caisse de dépôt et Placement du Québec (CDPQ) had the weakest performance for all 1-year, 3-year and 5-year periods as of December 31, 2022.

The numbers speak for themselves, here’s the proof.

Over a year

While our CDPQ ended 2022 down 5.6%, TEACHER’S ended the year up 4.0% and OMERS with an annualized return of 4.2%. We agree this is a nasty performance gap!

For its part, Investissement RPC was down 5.0% for the four quarters of 2022, slightly outperforming the CDPQ. But beware, the gap in favor of the CPP will widen dramatically over the years.

Over 3 years

The annualized return on our CDPQ is 4.85%. Over the same three-year period (2020, 2021, 2022), OMERS reports an average annual return of 5.45%.

Well ahead of the CDPQ, we find Investissement RPC with an annualized return of 6.66% and TEACHER’S with 7.86%.

Over 5 years

Again, our CDPQ is beaten by the other three major Canadian funds.

For this 5-year period (2018 to 2022), the CDPQ reported an annualized return of 5.8%. That’s 3/10 percentage points less than the 6.1% annualized return reported by OMERS.

But where the CDPQ’s relative performance is pathetic is in comparison to that of two other major credit unions. TEACHER’S enriched its depositors with an average annual return of 7.3%. That’s 1.5 percentage points more per year than the CDPQ’s return.

And the gap is even wider at CPP Investments, which has returned an annualized 8.1% over 5 years. We’re talking about an annualized gap of 2.3 percentage points.

“Over five years, according to the 2022 Annual Report, the CDPQ delivered $91.8 billion in investment results, thanks to an annualized return of 5.8%. »

Let’s talk… If the CDPQ had achieved the returns of its peers, the investment results over 5 years would have been potentially $25 billion with the return of TEACHER’S (7.3%) or $36 billion with that of Investissements RPC (8.1 %) gone up. . With the return of OMERS (6.1%) we are talking about an additional 5 billion.

Emond and its added value

In his testimony before the Public Finance Committee, Charles Emond confirmed that he had not benefited from the 5-year total return component in the calculation of his variable remuneration, on the contrary. He has headed the CDPQ for three years and claims to be responsible for nearly all of the $17.9 billion in value creation over the five years in question.

Mr. Emond therefore suggests that his variable compensation (bonus) of $3.58 million in 2022 would have been higher if his 3 years as CEO had been accounted for instead of the 5 years of aggregate performance.

When Emond speaks of “his” added value, he is obviously referring to the benchmark against which the CDPQ compares.

If the Caisse de depot et Placement du Québec had used the OMERS or TEACHER’S benchmark indices, there would have been no added value, quite the opposite. (I can’t compare to the RPC because I don’t have their benchmarks.)

For the one-year term, the CDPQ had a benchmark index of -8.3%, compared to a benchmark index of +7.2% for OMERS and +2.3% for TEACHER’S.

Relative to the benchmark index over 3 years, the CDPQ returned an annualized return of 3.49%, well below the 6.9% return of the OMERS benchmark index and the 7.2% return of the TEACHER’S.

And over 5 years, the benchmark index of the CDPQ has an average annual return of 4.90%, compared to 7.1% for OMERS and 6.8% for TEACHER’S.

An unflattering comparison for the Caisse

Annualized return as of December 31, 2022