Caisse CEO Charles Emond says pent-up pressure is likely to push economic growth down and drive prices higher in the final months of the year.Graham Hughes/The Canadian Press
The chief executive of Quebec’s largest pension fund manager is warning that the full impact of tariffs is still to come, and that pent-up pressure is likely to push economic growth down and drive prices higher in the final months of the year.
Charles Emond, the CEO of the Caisse de dépôt et placement du Québec, said Tuesday that investors have been pleasantly surprised that U.S. tariff policies imposed by the Trump administration haven’t caused more damage, or more immediately pushed inflation higher.
But it is increasingly evident that many companies stocked up on inventory in advance and, in many cases, kept prices steady while waiting to see where whipsawing tariff levels settle. It is now becoming clear that effective tariff rates will be significantly higher than they were, and Mr. Emond expects the health of the U.S. economy to worsen.
“The reality is, as the demand was softening, it actually has managed to act as a counterweight to the inflation we would have seen otherwise. But at some point, the inflation is boiling up,” Mr. Emond said in an interview. “My sense is, by the time we’re at Christmas, this is going to be a little bit problematic.”
The Caisse earned a 4.6-per-cent return in the first half of the year, beating its 4.3-per-cent internal benchmark, according to a mid-year update released Tuesday. Total assets increased by $23-billion to $496-billion in the six months to June 30. Over the last decade, the Caisse has earned an average annual return of 7 per cent, ahead of a 6.4-per-cent benchmark.
The Caisse manages investments for 48 depositors including pension plans that represent more than six million people in Quebec, with a mandate to earn good returns while contributing to the province’s economic development.
The pension fund’s strongest returns through the first half of 2025 came from public equities, and from a deliberate trading strategy that paid off during a wild period for markets, Mr. Emond said.
When stock markets plunged in early April after U.S. President Donald Trump announced his “Liberation Day” tariff rates, the Caisse was ready to be a buyer. The pension fund manager expected some upheaval and had trimmed the level of risk it was taking in liquid markets, kept more cash on hand and increased its currency hedges on the U.S. dollar.
When stock markets have steep drops, “we have a multi-dimensional plan where everything is ready. So when it happens, we don’t think about it, we break the window, we take the tool out and we execute on it,” Mr. Emond said.
“And it’s much easier to do because we keep reminding ourselves it’s tough to think straight when it’s getting hot in the kitchen.”
A rapid depreciation of the U.S. dollar still put a dent in the Caisse’s returns, although the pension fund manager’s hedging positions offset nearly half of the potential losses.
The Caisse increased its U.S. investments across all assets classes over the past five years and “that paid off,” Mr. Emond said. But looking ahead, U.S. companies outside the largest technology giants “aren’t doing that well,” the U.S. dollar could be facing “structural challenges,” and the U.S. Federal Reserve could have a tough choice to delay interest rate cuts to fight inflation, even as growth slows.
“Now, if you think about the U.S. market, some diversification is warranted,” he said. “So that leads us to invest elsewhere like Canada, like Europe.”
As Canada’s government and its European counterparts gear up to make major investments in infrastructure, energy and defence to bolster their economic and national security, attention is turning to large pension funds as potential cornerstone investors.
The “poster child” for that approach is a recent investment of up to $3.2-billion that the Caisse made in a new nuclear power plant in eastern England, with the British government as the lead investor to keep the risks in the Sizewell C project at a level investors can accept, Mr. Emond said.
“A lot of governments around the world are actually taking note of the fact that we can step in – the Caisse, especially given our dual mandate as to how to deal with governments – to make deals that can be attractive to not only ourselves, but their constituents,” he said.
“Whether it’s in Canada or elsewhere, we’re getting a lot of inbound calls with that mindset.”