Charles Emond, president and CEO Caisse de depot et placement du Quebec, stands poses inside the fund's headquarters in Montreal, on Feb. 7, 2020.Christinne Muschi/Christinne Muschi/The Globe and
Charles Emond had just moved into the CEO’s suite at Caisse de dépôt et placement du Québec in early 2020 when the bottom fell out of, well, everything.
Within days, a worldwide pandemic ended more than a decade of relative calm in financial markets, only to be followed by a destabilizing new era of inflation, high interest rates, war and deglobalization.
That Mr. Emond managed to steer the $434-billion pension fund manager through such turbulence without too many unforced errors helps explain why Quebec Premier François Legault’s government this month appointed him to a second five-year term a full year before his first five-year mandate was set to expire.
Mr. Emond’s reappointment – until 2029 – will give him more time to complete the transformational projects that he has launched within the Caisse and fix nagging problems that have dragged down its returns. Not the least of these is the train wreck at French rail giant Alstom, which counts the Caisse as its biggest shareholder, as it struggles to integrate Bombardier Transportation.
That’s not all. A major overhaul of the Caisse’s real estate portfolio is expected to yield $100-million in annual operating savings, but also lead to significant job cuts at property units Ivanhoé Cambridge and Otera Capital before the property downturn is over. And infrastructure unit CDPQ Infra faces a slew of negative press as the rollout of its signature Montreal light-rail transit project is dogged by service interruptions.
The Caisse last week reported 2023 results showing that it earned a 7.2-per-cent return last year, putting it just shy of its benchmark portfolio’s 7.3 per cent, but a sharp turnaround from a 5.6-per-cent loss in 2022. The 2023 results were nevertheless below the 9.1-per-cent median gain posted by Canadian defined benefit pension plans, according to RBC Investor Services.
The Caisse’s real estate portfolio dropped in value by more than $3-billion, or 6.2 per cent, to $45.6-billion. The red ink would have been worse had the Caisse not moved since 2020 to reduce its exposure to shopping centres and offices, concluding more than 300 transactions to that end. But it is still not out of the woods; Mr. Emond predicted a “bloodbath” in the office market over the next two years.
Speaking of bloodbaths, the Caisse’s 17.5-per-cent stake in Alstom has plummeted in value by 75 per cent to barely $1.1-billion since the Paris-based company bought Bombardier’s rail unit in 2021. Alstom’s stock was down by more than half in 2023 alone after the company withdrew previously positive free cash flow projections as it experiences delivery delays on contracts inherited from Bombardier.
In November, Alstom said it would cut more than 1,500 jobs and undertake asset sales to reduce its debt load. But the stock has continued to fall as investors speculate that Alstom could be forced to issue new shares to boost liquidity.
The stock rout at Alstom led the Caisse’s $80-billion private equity holdings to a meagre 1-per-cent gain in 2023. It would have earned 5 per cent without Alstom, still below the 10.5-per-cent gain posted by the benchmark private equity portfolio.
The Caisse supported a recent move to split the chairman and chief executive jobs at the rail giant. Long-time CEO Henri Poupart-Lafarge is set to surrender the chairman’s post to outsider Philippe Petitcolin at Alstom’s July annual meeting. But a bigger management shakeup could be needed to put Alstom back on track.
CDPQ Infra, meanwhile, has faced an onslaught of criticism since the July inauguration of the first phase of Montreal’s Réseau express métropolitain (REM) light-rail system, as repeated service interruptions leave many commuters nostalgic for the express bus service that used to run between the city’s south-shore suburbs and downtown.
The REM was given a monopoly on that service by the Quebec government. But CDPQ Infra’s performance as a transit operator has been widely panned and its role in future projects is openly questioned – even before it rolls out REM service on the Island of Montreal by year-end and to Trudeau airport in 2027.
CDPQ Infra was forced to issue a public apology in November after a series of equipment and communications failures left commuters stranded on the REM’s driverless trains between stations, although it attempted to shift part of the blame for the snafus on Alstom, which provided the trainsets, and AtkinsRéalis, which heads the consortium building the REM.
Quebec Transportation Minister Geneviève Guilbault last month issued an ultimatum to CDPQ Infra, saying: “The problems encountered in the past six months must be taken seriously and we must ensure that users are well informed. It is imperative the service improve.”
Critics argue the REM has become a distraction for the Caisse, which has no particular expertise as a transit operator and should focus on its core mandate of managing the funds of its 48 depositors, led by the Quebec Pension Fund. The Caisse has a right to sell the REM after five years, and some observers predict CDPQ Infra may seek to unload the transit system to the Quebec government by the end of the decade.
Still, Mr. Emond has plenty more fires to put out before then. Luckily, after four fiery years, he has more than proved he can stand the heat.
Konrad Yakabuski