For its impact in the development of Québec, for its leadership among sovereign investors and public investors worldwide, for its significant investment activity during 2022, and, more broadly, for its contribution to the advancement of the industry, Global SWF believes that Caisse de dépôt et placement du Québec (CDPQ) is a worthy recipient of the 2022 Fund of the Year award. We were delighted to present the award to Charles Emond, its Chief Executive Officer, and to speak with him about the fund’s recent evolution and ambitions.
[GSWF] CDPQ was established 57 years ago to manage the province’s newly created retirement plan. How has the fund’s strategy changed and how will it continue to evolve in the years to come?
[CDPQ] La Caisse was created in 1965 at a time when Québec was expanding and has grown considerably since then, becoming Canada’s second largest public investor. One thing that characterizes us is our dual mandate: serving our 47 depositors and contributing to the province’s economic development. We can distinguish three buckets of evolution:
Asset diversification into private markets, which we started in the 1970s, and infrastructure among others;
Our global expansion in the last 10-15 years, with 75% invested out of Canada and 14 offices; and
Sustainability efforts including climate strategy and objectives.
[GSWF] Québec is among the world’s Top 50 economies and outpaced other Canadian provinces in 2021. What role is CDPQ playing in the development and sustainability of such growth?
[CDPQ] Investing in Québec has always been our raison d’être and is not mutually exclusive with our overseas efforts. Our assets in Québec have usually performed very well because it is an ecosystem we know very well. Today, we have about US$ 59 billion invested in Québec across different asset classes, compared to the size of the economy of US$ 380 billion. Considering our depositors – which represent about 6 million Quebecers – we have a huge domestic impact and the good thing about Québec’s economy is that it is very well diversified, which plays to our strength as an investor and advisor.
[GSWF] Canadian Funds demonstrated their resilience in 2022, with investment returns better than their global peers – why do you think that is and what makes CDPQ successful?
[CDPQ] The Canadian model has done very well by applying strong governance criteria, the expansion into private markets and inflation-protected assets; and the ability to manage these assets internally. At CDPQ, we manage 85% of our portfolio internally, which allows us to manage the portfolio at a lower cost and play a more active role in the governance of our investments – including with operating partners who add value over the lifecycle of the investment – that can make an important difference to our performance.
[GSWF] CDPQ has raised over US$7 billion in debt in the past two years including green bonds. How important is to diversify your capital base and how much is coming from overseas?
[CDPQ] Maintaining good levels of liquidity has become very important, especially in the past 10 years. For us, raising debt is one tool among many of creating liquidity as well as a tool for portfolio construction. By issuing in various markets, from USD to Euro and CAD, it allows us to stay in the market, diversify our investor base and our funding sources. The quality of our assets, liquidity position result in a very strong credit profile, allowing us to maintain a AAA rating, which is very attractive in the market and represents great value for investors. In terms of who buys this debt, 75% is central banks and banks, with the balance distributed to asset managers and insurers. From a geographical standpoint, our investors come mainly from North America (45%), followed by EMEA (35%), Asia and Latin America (20%). As with our assets under management which are diversified across the world, we try to diversify and keep a broad investor base, but at the same time have a very conservative capital structure and maintain a senior debt leverage level below 10%.
[GSWF] CDPQ was especially active this 2022 – what transaction/s are you proudest of?
[CDPQ] We are proud of all our teams globally but there have been a few noteworthy investments this year, namely:
Over 50 investments in Quebec-based companies, our local market;
The acquisition of 22% of Jebel Ali Free Zone in the UAE for US$ 4.0 billion, which was a trophy asset and seeks to leverage our relationship with DP World and our growth across the Southeast Asia and East Africa regions;
Our US$ 0.5 billion investment in Shizen Energy, which is a renewable energy leader and our first direct deal in Japan and seeks to dip our toes in the transition from fossil fuels to green energy in Asia;
Ivanhoé Cambridge announcing a partnership – and two investments – with NVELOP to expand “Hub & Flow” in Germany for our European portfolio aimed at building a platform of logistics properties along key supply chains;
Our fixed income team supporting KKR’s acquisition and the energy transition plan of France-based Albioma SA, representing the inaugural transaction for our CAD $10 billion transition envelope; and
Our recent acquisition of 100% of Akiem, the leading provider of locomotive leasing services in Europe that is operating 75% of its fleet on electricity, which plays well into our decarbonization efforts.
[GSWF] Infrastructure is a huge asset class for CDPQ. Where do you see the best opportunities?
[CDPQ] Infrastructure has grown from 6% to 13% of our portfolio, and we expect to raise it to 16% by 2026. This means an extra allocation of US$ 18 billion in the next four years, though we may reduce North America in relative terms. Regarding sub-sectors, we are big into renewables and transportation, and we also like Telecom, and are finishing some parts of the REM (light-rail project) in Montreal. Our competitive edge in infrastructure is that we can go for large tickets where there is less competition, take control positions and do almost everything internally.
[GSWF] CDPQ’s portfolio is truly global – where do you see future growth? What is CDPQ Global’s role?
[CDPQ] Today, two thirds of our portfolio sit in North America and a potential tectonic shift would probably be for us increasing our weight in Asia, although that would depend on the asset classes. For example, in Private Credit there may be a push in the US and Europe. In Infrastructure, it could be all around the world including emerging markets, given our expertise. And in Real Estate it could be more granular including new cities in the US, in Japan or in Australia.
The idea with CDPQ Global was to make sure that we find the right partners and can also have an open dialogue with the regulatory authorities, governmental representatives, etc. In today’s environment, governmental affairs have become crucial. I am a big believer of having boots on the ground and having strong local representatives.
[GSWF] Can you walk us through your commitment to Indonesia’s INA and your international partnerships?
[CDPQ] Selecting the right partners when investing abroad is key to us as we benefit from their expertise, local networks and can come into big projects with more confidence and conviction. We signed an MoU with INA along with APG and a subsidiary of ADIA, which we thought was an ideal combination. We really like Indonesia; I had the chance of meeting with INA’s CEO when I was in that region recently, and we believe it is a country that offers a large pool of opportunities. The work is ongoing, and INA is looking at different opportunities that will also give us an edge on responsible investing.
[GSWF] CDPQ issued a very ambitious climate strategy in 2021 – how important is decarbonization for you?
[CDPQ] Decarbonization is now part of our culture and DNA, and we have made it our priority. Since 2017, we have set ambitious targets which we have exceeded, and in 2021, we raised the bar once more reducing carbon intensity. Today, for every dollar we own, we have 50% less of carbon intensity than we had five years ago. In terms of our portfolio, 80% of the US$ 304 billion are now low carbon emission assets. We are also investing in assets from heavy-emitting sectors as part our CAD$ 10 billion transition envelope, which is a great risk-return proposition for our clients. We have set very ambitious targets for 2025 and 2030 and we are one of the world’s only public investors (the first and the largest) to have compensation tied to carbon reduction targets since 2017.
[GSWF] CDPQ employs over 2,300 people in 11 countries – how do you expect these figures to grow?
[CDPQ] We have been growing at a pace of about 100 people a year for the past five or six years, which aligns with our growth in assets and objectives. However, our structure is quite lean, and our costs are quite low when compared to some of our peers. What keeps me awake at night is the battle for talent, which is real not only at CDPQ but all over the world. Ours is a very competitive market, but we believe our brand of constructive capital – which also appeals to the next generation – as well as our global mandate, makes us an attractive proposition. We deploy a lot of effort in this because if we don’t have people, we don’t have assets, and we don’t have returns.