(Montreal) The Caisse de depot et placement du Quebec (CDPQ) would have obtained higher returns if it had followed a simple index strategy, according to a new study by the Center for Productivity and Prosperity (CPP) of HEC Montreal.

The Caisse’s assets would have been 11% higher if Quebecers’ low-income managers had replicated a simple “classic” index strategy from 2009 to 2021, according to the report released Thursday. The Caisse thus ranks sixth in a sample of eight large Canadian public sector pension funds.

The Caisse generates sufficient returns to honor its commitments to Quebec workers who contribute to the Quebec Pension Plan (QPP), but this poor performance still raises questions, believes the director of the CPP, Robert Gagné. “I don’t see why Quebecers should leave money on the table,” laments the professor in an interview.

In its comparison, the CPP uses a benchmark index different from that of the Fund to arrive at its conclusions. It takes that of the Canada Pension Plan Investment Board, which is made up of 85% stocks and 15% bonds.

The index is different from the Caisse de dépôt’s portfolio, which contains nearly 30% in fixed income, 25% in real assets (real estate and infrastructure), 25% in shares listed on the stock exchange and 20% in shares of private companies, dated December 31, 2022.

Mr. Gagné believes it is reasonable to take a benchmark with a different weighting. The comparison allows “to see what the Fund is giving up in making the choices it makes”. “That’s how you establish its relevance (of the strategy). »

At the Caisse, the report is considered to be “oversimplified”. The risk of the index used by the CPP has a too risky risk profile. An index profile containing 60% equities and 40% fixed income would have been more appropriate, she said. Compared to this index, the outperformance would be “constant” since 2009 at 44 billion. “The comparison made by the Center is therefore not appropriate”, reacts the institution in a press release.

The CPP report notes that the Caisse has generated added value since 2014. However, the difference would be largely attributable to private placements, assets whose value is more difficult to establish than shares listed on the stock exchange. “Private placements aren’t priced by the markets objectively because there aren’t as many transactions,” says Gagné.

However, this added value plays a role in evaluating the performance of Caisse officers. Its most senior executives shared 10.6 million in bonuses in 2022. “It allows the Caisse to trumpet from all the rooftops that it is good and that it does its job well”, quips Mr. Gagné.

In addition, the weighting of private equity has almost doubled in the Caisse’s portfolio since 2013. This change has been accompanied by significant operating expenses. The Caisse’s workforce has increased by 68% between 2013 and 2021.

In February, the Caisse claimed, for its part, that its portfolio had generated the equivalent of 30 billion in added value over a period of 10 years compared to its benchmark index. Its annualized return was 8% over 10 years, as of December 31, versus 7% for its benchmark.

At the Caisse, we ensure that the valuation of private placements is carried out according to the rules. “The rigor of performance data for this portfolio is demonstrated by tracking the highest standards and is validated by external auditors and independent evaluators. »

The institution also considers that operating expenses are not a good indicator if they are not compared with the total size of the asset. In total, the Caisse’s costs represented 0.48% of its portfolio in 2022. “CDPQ’s average cost ratio over the last three years, from 2020 to 2022, has been the average of its Canadian peers over the same period. »

Mr. Gagné acknowledges that his report could contain errors, but he believes that the Caisse’s “lack of transparency” complicates its work. “We think the job is well done. We think our conclusions are solid, but obviously we would be more comfortable if we had had access to more information to validate what we are saying. »