The Caisse de Depot et Placement du Quebec headquarters in downtown Montreal.Christinne Muschi/The Canadian Press
The Caisse de dépôt et placement du Québec earned a 5.1-per-cent return in the first half, booking one of the fund’s best six-month returns in the past decade.
But that still fell short of its 7.5-per-cent internal benchmark, according to a mid-year update released Tuesday.
The disconnect is a symptom of “a strange situation” in markets, driven primarily by the race to build artificial intelligence infrastructure that has rewarded massive and highly concentrated spending on one sector, chief executive officer Charles Emond said Thursday.
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Fervour over artificial intelligence and a small collection of leading technology companies that are building new AI models and data centres “single-handedly” has driven the performance of markets so far this year, he said, adding: “It’s an anomaly.”
The Caisse, like many of its large Canadian peers, measures its performance against benchmarks that are weighted toward indexes of stocks that have risen sharply in value. The private assets that make up a large part of the Caisse’s portfolio have struggled to keep pace.
But the Caisse is betting that, over the long run, a portfolio with a more diverse mix of assets will better protect and expand the assets it manages to pay pensions.
“We want to make sure that we join the ride on the way up, smartly, but can absorb the shock very significantly on the way down,” Mr. Emond said in an interview. “And that’s part of the balance that we’re providing.”
The fund’s investments in publicly traded stocks gained 14.6 per cent through June, beating a 13-per-cent benchmark. Its infrastructure portfolio increased 7.2 per cent and real estate was up 2.7 per cent. But private equity investments lost 4.3 per cent.
The fund’s total assets increased by $34-billion to nearly $552-billion in the six months to June 30.
Over the past decade, the Caisse has earned an average annual return of 7.5 per cent, roughly on par with its weighted 10-year 7.6-per-cent benchmark.
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AI is one of the biggest themes the Caisse is tracking across its portfolio. “It comes from every angle. It’s that important,” Mr. Emond said.
But expectations for the AI sector’s future profits are still “very high” and there are reasons to scrutinize how sustainable the current levels of investment will be in a race to capture the market.
“There can be bumps along the way, and that is what we need to brace for,” he said.
The Caisse owns shares in the largest technology companies, has invested in data centres and has been a lender to data centre developers. But Mr. Emond said the fund is choosing its investments in the AI sector carefully.
“There’s many ways to skin that cat,” he said.
Aside from AI, the main concern for markets in the second half of the year is the continuing instability in the Middle East, which could push inflation higher and create pressure to raise interest rates. That, in turn, could dampen economic growth and add strain to labour markets.
“Central banks will have difficult decisions to make,” Mr. Emond said.