Using the pretext that Charles Emond and his colleagues in senior management outperformed in 2022 by reporting an alleged “added value” of $10 billion, while the Caisse de depot etplacement du Québec (CDPQ) actually had 25 After losing billions of dollars, the Caisse paid its superiors executives $10.6 million in bonuses.
Were those juicy bonuses deserved? Absolutely not, says the study, just conducted by experts from HEC Montréal’s Center for Productivity and Prosperity – Walter J. Somers Foundation, namely Robert Gagné, Jonathan Deslauriers, Claude Laurin and Jonathan Paré.
This study by the HEC throws the Caisse “a stone in the pond”, while if the executives “had been evaluated on the basis of a more rigorous analytical process, the conclusions might not have been the same”.
The index par excellence
Had the Caisse used that of CPP Investments, manager of the Canada Pension Plan’s $570 billion assets, as a benchmark, the Caisse would not have added “positive value”. Rather, the fund would tend to show “negative added value”. Or if you prefer, a “reduced value” compared to the reference index.
As evidence, experts at HEC Montréal have calculated that the return generated by the Caisse over the period 2009-2021 generated assets 11% below the paper assets covered by the CPP Investments index.
And considering that since 2009, the Caisse’s portfolio managers have led us to believe that they have brought “added value” to us. The Caisse has reported that it has outperformed “its” reference index ten times in the last 14 years.
According to the HEC study, as of 2019, the risk level of the CPP benchmark index is equivalent to a portfolio composed of 85% equities in global markets (S&P World Index of large and mid-cap companies) and 15% Canadian government bonds (FTSE Canada All- government index).
“Efficiency Breakdown” at checkout
The Caisse, in turn, prefers to compare the performance of its portfolio managers against the average returns achieved in the various markets in which the Caisse operates.
In the opinion of the four experts from HEC, the Caisse is “no longer efficient”.
They concluded: “Crown Corporation is not effectively fulfilling its mission and there are a number of additional issues to consider in this regard.”
- Operating expenses, or “costs of administering and administering internally managed portfolios and investments,” increased 128% between 2014 and 2021, representing a 68% increase in the fund’s workforce;
- Transaction costs, which are costs “attributable to the acquisition, sale and issue of financial instruments,” increased by 247%;
- External management fees associated with equity markets, i.e. “amounts paid directly to institutional fund managers to manage equity market securities included in the CDPQ”, are 13 times higher than in 2014;
- The external management fees associated with private placements, i.e. “fees for the management of private market investments by external managers”, accounted for at least one-third of the CDPQ’s expenses.
private placements
What do the HEC study experts think of the remarkable performance of the $81 billion invested by the Caisse in private placements?
“There is no guarantee that the valuation of the return and value added associated with the private equity portfolio is appropriate, which is a major concern when we know that the majority of the value generated by the Caisse since 2014 is on this wallet.” based.” »
Since the 2008 debacle, the Caisse has posted an average annual return of 9.5%.
The problem? “This performance compares relatively poorly to other major pension fund managers in Canada. »
The Caisse ranks sixth among Canada’s eight largest credit unions. CPP Investments, which ranked second, had an average annual return of 10.9%.
