CDPQ Gains 13.5% in 2021

• In 2021, CDPQ posted its best absolute and relative returns since 2010 and produced over $10 billion in value added
• Depositors’ net assets totalled $420 billion, with close to $49 billion in investment results
• Total assets in Québec posted highest ever growth, reaching $78 billion, including $60 billion in the private sector

Caisse de dépôt et placement du Québec (CDPQ) today presented its financial results for the year ended December 31, 2021. The weighted-average return on its depositors’ funds was 13.5% in 2021, compared with 10.7% for the benchmark portfolio, representing $10.4 billion in value added. The annualized returns over five and ten years were 8.9% and 9.6%, respectively, also outperforming the benchmark portfolio.

As at December 31, 2021, CDPQ’s net assets were $419.8 billion, up $149.1 billion over five years, with investment results of $141.0 billion and net deposits of $8.1 billion. Over ten years, investment results were $241.0 billion and net deposits were $19.8 billion.

“In 2021, all our portfolios delivered strong performances, producing nearly $49 billion in investment results. Infrastructure and Private Equity generated exceptional returns, Equity Markets leveraged the benefits of the portfolio’s evolution, Real Estate’s repositioning yielded clear results and we successfully navigated a pronounced rate hike in Fixed Income,” said Charles Emond, President and Chief Executive Officer of CDPQ. “This shows that our strategies are working and effectively taking into consideration today’s key challenges: the climate transition, the digitization of the economy and ongoing changes on the international stage.”

“The conditions we face—including pandemic-induced imbalances, rising interest rates and growing inflation—significantly increase the complexity of the business environment for 2022. Very disciplined execution of our strategy, rigorous investment selection and sound diversification will be essential to continue performing well in the coming years.”

“During the year, we intensified our presence in Québec with the strongest ever increase in our assets, now reaching $78 billion. All our teams played a key role in supporting the growth of our Québec-based portfolio companies, here and abroad. Our market insights have served their business plans, allowing them to achieve their ambitions. I am proud of our teams, who work every day to build a competitive and sustainable Québec economy while generating returns for our depositors.”

Highlights of results and achievements

Each CDPQ depositor has its own investment horizon and tolerance for risk. As such, their results vary based on their investment policies. In 2021, the returns of CDPQ’s eight main depositors ranged from 9.3% to 15.9% for one year. Their annualized returns ranged from 7.6% to 9.8% over five years and 8.2% to 10.6% over ten years. Over the long term, depositors require a 6% return on average.

Fixed Income: Good performance above the benchmark in a market under pressure from rising rates

In Fixed Income, CDPQ posted a -0.6% one-year return, outpacing its benchmark index which stood at -1.2%, in difficult conditions related to a pronounced rate hike. Private credit’s good results, combined with a strategic positioning that anticipated the rate increase, allowed the portfolio to outperform its benchmark. Over five years, the asset class recorded an annualized return of 4.5%, above the 3.7% of its benchmark, which represents value added of over $4 billion. The excellent performance of all credit activities contributed to this result.

Private credit investments and commitments were numerous in 2021, amounting to nearly $20 billion. Of note are investments in promising sectors such as telecommunications and health care. CDPQ provided financing to Phoenix Tower International, a leading global supplier of wireless communications infrastructure, in a transaction that could total EUR 775 million. It also led new financing totalling USD 300 million in Tillman Infrastructure, an American leader in telecommunication towers. In Europe, CDPQ led a round of financing totalling EUR 180 million for a loan to Atrys Health, a leader in medical diagnostics, cancer treatments and occupational health.

Real Assets: Changes in Real Estate are delivering results, Infrastructure portfolio produces excellent performance

Real Estate

In 2021, the Real Estate portfolio generated a 12.4% return. This performance stems from strategic changes that were implemented two years ago, just before the pandemic. Investments in promising sectors such as logistics, residential and life sciences were increased, and the portfolio’s exposure to shopping centres and traditional office buildings was decreased. The benchmark index’s one-year return was 6.1%. Over five years, the portfolio obtained a 1.5% return, primarily due to the major impact in 2020 of the pandemic and global confinement measures on shopping centres and office buildings, sectors to which CDPQ’s real estate subsidiary was more exposed. Its benchmark posted 5.1% for the period.

Over the last year, Ivanhoé Cambridge completed over 100 transactions aligned with the strategic priorities of its diversification plan. Totalling $18.8 billion, these transactions include $11.9 billion in investments and $6.9 billion in disposals. CDPQ’s real estate subsidiary expanded its exposure to logistics, notably by investing $600 million in the PURE (PIRET) platform in Québec and Ontario, as well as nearly $300 million in Moorebank Logistics Park, Australia’s largest intermodal logistics complex. In Northern Europe, Ivanhoé Cambridge launched a logistics partnership with URBZ Capital that aims to deploy up to EUR 400 million and was materialized with the acquisition of eight assets in the Netherlands. In the rapidly growing life-sciences industry, the subsidiary’s activities include an investment in a portfolio of nearly one million square feet of offices and R&D laboratories in Genome Valley (Hyderabad), the largest biotechnology hub in India.

Infrastructure

For one year, the Infrastructure portfolio posted a 14.5% return, its best in ten years, compared with 11.4% for its benchmark index. This result stems from the strong performance of portfolio assets in the renewable energy and telecommunications sectors. Over five years, the infrastructure activities produced an annualized return of 9.6%, above the benchmark at 9.2%, a value add that is also attributable to the portfolio’s exposure to the wind and solar energy sectors.

In 2021, the Infrastructure team continued its sustained and rigorous deployment of capital, with over $11 billion invested or committed. The telecommunications as well as goods and passenger mobility sectors were central to its investment activities. For example, CDPQ made major acquisitions in the telecommunication towers sector in Brazil and Europe, including an investment of over EUR 1.6 billion in ATC Europe. In terms of transportation-related activities, it invested AUD 2.3 billion in WestConnex, Australia’s largest road infrastructure project. Alongside DWS, CDPQ also acquired Ermewa, the European leader in railcar leasing. Lastly, through its partnership of over USD 8 billion with DP World, CDPQ entered the Indonesian market with the construction of a USD 1.2-billion logistics and industrial port.

Equities: Equity Markets transition successfully, Private Equity posts exceptional performance

Equity Markets

In 2021, the Equity Markets portfolio generated a 16.2% return, which was in line with its benchmark’s 16.1% return. The portfolio adapted its approach to include a better balance of styles, a broader investment universe and more dynamic portfolio management to better navigate different market environments. This greater flexibility allowed the portfolio to further draw on the markets’ strong upward momentum compared with previous years. Also driven by its exposure to developed countries, the portfolio’s return was, however, limited by the modest performance of the main Asian stock exchanges.

Over five years, the portfolio posted an annualized 10.7% return, stemming in part from the good results of quality stocks and growth-market stocks, while its exposure to Canadian markets limited performance. The difference with the benchmark index’s 11.5% return is notably attributable to the portfolio’s underweighting, over five years, in the stocks of major high‑growth technology companies.

Private Equity

Net assets for the Private Equity portfolio now stand at over $80 billion. Its one-year performance was exceptional at 39.2%, well above the 32.1% return of its benchmark.This is due to good positioning in the technology, finance, health care and consumer sectors. The quality of portfolio investments, combined with diligent post-investment asset management, also explain its excellent five-year performance, with an annualized return of 19.6%, also above its benchmark’s 14.3% return.

During the year, the Private Equity teams were disciplined in making $10 billion in acquisitions and $13 billion in realizations. Highlights include an investment in Druva, a California-based global leader in cloud data protection and management, through leading a USD 147-million financing round, and a majority stake in Wizeline, a technology services supplier operating in several countries. Also of note are two acquisitions announced by Constellation, a property and casualty (P&C) and life insurance platform with a USD 1-billion investment capacity, and the acquisition of a significant stake in Grupo Diagnóstico Aries, one of Mexico’s fastest-growing medical diagnostic services groups. At the end of the year, CDPQ invested in QIMA, a global testing, inspection and certification (TIC) company whose technology platform is well regarded in the supply chain compliance solutions sector.

2021: Intensified presence in Québec, global leadership in Stewardship Investing

Québec: Strong commitment to generating performance for our depositors while contributing to economic development

In Québec, 2021 was a very active year in terms of investments and initiatives, with assets in the private sector amounting to $60 billion. Accordingly, CDPQ’s total assets in Québec recorded their strongest ever growth, now totalling $78 billion.

CDPQ continued to invest in and work with Québec companies through the still fragile reopening of the economy. In this context, CDPQ made over $6.5 billion in new investments and commitments, focused on its strategic priorities: growth, globalization, the technological leap, and an economy and communities that are sustainable.

Growth

Among these investments are those aiming to support the growth of Québec companies, such as the increase in CDPQ’s stake in Énergir, which now stands at 80.9%. Also of note: a stake in privatizing the New Look Vision Group in a transaction valuing the company at $1 billion and financing in a round totalling $100 million to support the rapid growth of VOSKER, a world leader in remote area monitoring based in Victoriaville. In addition, CDPQ launched Ambition ME, which provides financing and support to Québec mid-market companies with strong potential to accelerate their growth and take them to the next stage in their development.

Globalization

Leveraging its expertise in international markets and its vast network, CDPQ continued supporting the globalization of Québec portfolio companies; it made an additional investment of $475 million in CAE, a global aeronautics leader, becoming the company’s majority shareholder, thereby allowing it to acquire U.S.-based L3Harris Technologies. CDPQ also made another investment in Solmax, the world’s leading geosynthetics manufacturer, allowing this Varennes-based company to acquire TenCate Geosynthetics, a provider of geosynthetics and industrial fabrics that offers its products in over 100 countries. It also invested $60 million in Laval-based Savaria, a global leader in accessibility, for the acquisition of Handicare Group, based in Sweden. Over the last five years, CDPQ’s portfolio companies have been very active on the international stage, making nearly 350 acquisitions outside of Québec, which amounts to more than one per week.

Technological leap

Supporting Québec companies that leverage digitization as a performance driver is at the heart of CDPQ’s priorities. For example, in 2021, CDPQ took part in a $225-million round of financing in AlayaCare to accelerate the digital transformation of home health care. In addition, CDPQ invested USD 75 million in an iNovia Capital fund for growing technology companies. CDPQ also acquired a 20% stake in Beyond Technologies, Canada’s leading SAP solutions integrator, and invested in M3 Group, the country’s leader in mortgage brokerage, to accelerate its digitization plan. Going beyond investing, CDPQ also launched Repères numériques, an initiative for Québec SMEs looking to implement a digital business culture.

Sustainable economy and communities

During the year, CDPQ announced a commitment in MKB’s second specialized fund, which totals $175 million and will invest in late-venture and early growth-stage companies focused on transportation decarbonization and electrification. It also supported portfolio companies in their green shift, including Demers Ambulances, which announced its first fully electric ambulance, and Student Transportation of Canada, which placed a conditional order of 1,000 electric buses from Québec-based Lion Electric, a leader in sustainable transportation.

REM and REM de l’Est

Work on the REM, CDPQ’s flagship project to provide sustainable transportation in Québec, continued to progress quickly, notably on the branch connecting Brossard to Central Station, which will be commissioned in 2022 despite the delays caused by the ongoing pandemic’s impact on workers and the supply chain. The network’s $7.8-million public art program was also announced. For the REM de l’Est, which is in the planning stage, significant optimizations have been announced on different sections of the route. CDPQ Infra will soon present the enhanced project’s architectural and integration proposal, and the committee of independent experts will also issue its report.

Climate strategy: A higher ambition to address the global challenge

In 2021, CDPQ renewed its climate ambition after exceeding the targets it set in its first climate strategy launched in 2017. Thanks to the experience acquired over the last few years, it identified four areas of action, with short-, medium- and long-term targets:

1. Hold $54 billion in green assets by 2025 to actively contribute to a more sustainable economy
2. Reduce by 60% the total portfolio’s carbon intensity by 2030
3. Create a $10-billion transition envelope to decarbonize the main industrial carbon‑emitting sectors
4. Complete CDPQ’s exit from oil production by the end of 2022

This distinctive approach, which demonstrates CDPQ’s global leadership on climate matters, will lead to achieving a net-zero portfolio by 2050, while pragmatically meeting the major challenges the climate transition poses for all sectors of the economy.

More details on CDPQ’s stewardship investing strategy, including its progress on climate targets and its commitments and initiatives in terms of equality, diversity and inclusion, as well as governance, will be presented in the Stewardship Investing Report published in the spring.

Financial reporting

CDPQ’s operating expenses, including external management fees, totalled $892 million in 2021. The expense ratio was 23 cents per $100 of average net assets—the same level as in 2020—which compares favourably to that of its industry.

CDPQ also has strong liquidity, which allows it to meet future commitments and face market events. The credit rating agencies reaffirmed CDPQ’s investment-grade ratings with a stable outlook, namely AAA (DBRS), AAA (S&P), Aaa (Moody’s) and AAA (Fitch Ratings).

ABOUT CDPQ

At Caisse de dépôt et placement du Québec (CDPQ), we invest constructively to generate sustainable returns over the long term. As a global investment group managing funds for public retirement 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, 2021, CDPQ’s net assets totalled CAD 419.8 billion. For more information, visit cdpq.com, follow us on Twitter or consult our Facebook or LinkedIn pages.

 These were exceptional returns all around and CDPQ is the first big Canadian pension to report.

The key points are here:

And when you drill down, all asset classes contributed to these results except for Fixed Income which was marginally down for the year but still beat its benchmark over the last year and past five years as private credit and portfolio positioning came through.

My attention immediately went to Real Estate which was challenged last year when CDPQ reported its 2020 results:

In 2021, the Real Estate portfolio generated a 12.4% return. This performance stems from strategic changes that were implemented two years ago, just before the pandemic. Investments in promising sectors such as logistics, residential and life sciences were increased, and the portfolio’s exposure to shopping centres and traditional office buildings was decreased. The benchmark index’s one-year return was 6.1%. Over five years, the portfolio obtained a 1.5% return, primarily due to the major impact in 2020 of the pandemic and global confinement measures on shopping centres and office buildings, sectors to which CDPQ’s real estate subsidiary was more exposed. Its benchmark posted 5.1% for the period.

Over the last year, Ivanhoé Cambridge completed over 100 transactions aligned with the strategic priorities of its diversification plan. Totalling $18.8 billion, these transactions include $11.9 billion in investments and $6.9 billion in disposals. CDPQ’s real estate subsidiary expanded its exposure to logistics, notably by investing $600 million in the PURE (PIRET) platform in Québec and Ontario, as well as nearly $300 million in Moorebank Logistics Park, Australia’s largest intermodal logistics complex. In Northern Europe, Ivanhoé Cambridge launched a logistics partnership with URBZ Capital that aims to deploy up to EUR 400 million and was materialized with the acquisition of eight assets in the Netherlands. In the rapidly growing life-sciences industry, the subsidiary’s activities include an investment in a portfolio of nearly one million square feet of offices and R&D laboratories in Genome Valley (Hyderabad), the largest biotechnology hub in India.

I want to state that these are truly exceptional results for 2021 and publicly commend Ivanhoé Cambridge CEO, Nathalie Palladitcheff, and the entire team there for coming back so strongly.

Yes, the five year return still lags the benchmark but that is a huge portfolio which underwent massive repositioning and thus far, the strategy is paying off nicely.

I would recommend you read my discussion with Ms. Palladitcheff and Stéphane Villemain, Vice President, Corporate Social Responsibility to really gain a much deeper appreciation of the work they are doing there. You can read it here. 

What else struck me? Obviously, Private equity had a stellar year:

Net assets for the Private Equity portfolio now stand at over $80 billion. Its one-year performance was exceptional at 39.2%, well above the 32.1% return of its benchmark. This is due to good positioning in the technology, finance, health care and consumer sectors.The quality of portfolio investments, combined with diligent post-investment asset management, also explain its excellent five-year performance, with an annualized return of 19.6%, also above its benchmark’s 14.3% return.

During the year, the Private Equity teams were disciplined in making $10 billion in acquisitions and $13 billion in realizations. Highlights include an investment in Druva, a California-based global leader in cloud data protection and management, through leading a USD 147-million financing round, and a majority stake in Wizeline, a technology services supplier operating in several countries. Also of note are two acquisitions announced by Constellation, a property and casualty (P&C) and life insurance platform with a USD 1-billion investment capacity, and the acquisition of a significant stake in Grupo Diagnóstico Aries, one of Mexico’s fastest-growing medical diagnostic services groups. At the end of the year, CDPQ invested in QIMA, a global testing, inspection and certification (TIC) company whose technology platform is well regarded in the supply chain compliance solutions sector.

Martin Laguerre, Executive Vice-President and Head of Private Equity and Capital Solutions, and his team are delivering outstanding results and this was truly a stellar year.

One note, you will see that CDPQ underweights high‑growth technology companies in Public Equities as it prefers to invest in them in Private Equity (more of a value tilt in public equities). 

In my past discussion with CDPQ's CEO, Charles Emond, I remember him telling me this is deliberate and that they feel they have more control over these companies in their private equity portfolio.

Clearly, the good positioning in the technology, finance, health care and consumer sectors really helped that portfolio deliver great results last year. 

Next, Infrastructure led by Emmanuel Jaclot had a banner year:

For one year, the Infrastructure portfolio posted a 14.5% return, its best in ten years, compared with 11.4% for its benchmark index. This result stems from the strong performance of portfolio assets in the renewable energy and telecommunications sectors. Over five years, the infrastructure activities produced an annualized return of 9.6%, above the benchmark at 9.2%, a value add that is also attributable to the portfolio’s exposure to the wind and solar energy sectors.

In 2021, the Infrastructure team continued its sustained and rigorous deployment of capital, with over $11 billion invested or committed. The telecommunications as well as goods and passenger mobility sectors were central to its investment activities. For example, CDPQ made major acquisitions in the telecommunication towers sector in Brazil and Europe, including an investment of over EUR 1.6 billion in ATC Europe. In terms of transportation-related activities, it invested AUD 2.3 billion in WestConnex, Australia’s largest road infrastructure project. Alongside DWS, CDPQ also acquired Ermewa, the European leader in railcar leasing. Lastly, through its partnership of over USD 8 billion with DP World, CDPQ entered the Indonesian market with the construction of a USD 1.2-billion logistics and industrial port.

I've covered many of these deals but clearly last year was exceptional for CDPQ's Infrastructure group and they really outdid themselves.

Lastly, CDPQ's Quebec portfolio led by Kim Thomassin grew significantly last year:

In Québec, 2021 was a very active year in terms of investments and initiatives, with assets in the private sector amounting to $60 billion. Accordingly, CDPQ’s total assets in Québec recorded their strongest ever growth, now totalling $78 billion.

CDPQ continued to invest in and work with Québec companies through the still fragile reopening of the economy. In this context, CDPQ made over $6.5 billion in new investments and commitments, focused on its strategic priorities: growth, globalization, the technological leap, and an economy and communities that are sustainable.

There were great deals in this portfolio, most notably in Énergir where CDPQ increased its stake and along with partner FTQ, took full ownership earlier this year. 

One note on  executive leadership, Marc-André Blanchard is now Head of CDPQ Global and Global Head of Sustainability.

Mr. Blanchard posted this on LinkedIn:

I'm certain he will continue to lead the Sustainable Investing team with the leadership of Bertrand Millot in the right direction. 

As for Kim Thomassin, her focus will now exclusively be on the Quebec portfolio:

I am certain under her leadership the Quebec portfolio will grow very nicely and they will discover the next generation of entrepreneurs our province desperately needs.

One last note on overall results.

When you see results like these across public and private markets, you understand why the weighted-average return on its depositors’ funds was 13.5% in 2021, compared with 10.7% for the benchmark portfolio, representing $10.4 billion in value added. The annualized returns over five and ten years were 8.9% and 9.6%, respectively, also outperforming the benchmark portfolio.

This about as good as it gets, that's almost 300 basis points of value added over the benchmark portfolio for a $420 billion global pension fund.

By any measure, these are exceptional returns and I commend CDPQ's entire team for delivering such outstanding results.

I did email Charles Emond late today but I am pretty sure he's very busy with traditional media outlets.

Next week is March break for Quebec and I wish everyone at CDPQ un bon repos!

Below, an interview with CDPQ's CEO Charles Emond going over 2021 results and discussing geopolitical tensions (in French). 

Charles talked about how they repositioned the $65 billion real estate portfolio to invest more in logistics and multifamily properties (from 28% to 40% of real estate portfolio).

I have to say, CDPQ picked the day to release its results but despite the geopolitical turmoil, it ended being a very decent day in markets.

In fact, the Nasdaq opened down 3.5% and ended the day up 3.3% as traders bet the Fed will likely not hike aggressively and when uncertainty reigns, they buy the dip on tech stocks:

Still, the downtrend in tech stocks remains intact and the situation in Ukraine can easily get far worse, clobbering risk assets.

I also embedded a clip going over CDPQ's climate strategy 2021. I am looking forward to reviewing the the Stewardship Investing Report that will be published in the spring.

Please note the annual report isn't out until April and will review that once it is publicly available.