Did you know that the Quebec government is one of the biggest financial speculators?
He plays on margin in the stock market… while the mountain of money he entrusts to the portfolio managers of the Caisse de depot et placement is funded by issuing government bonds.
Like any good experienced speculator, his challenge is to get a return on the Caisse that is higher than what it costs him to borrow that mountain of money in the bond market.
Of the 46 depositors who trust the Caisse de Depot et Placement du Québec with their money, the Treasury Department holds the largest fortune.
As of December 31, we’re talking about an astronomical total of $132 billion across the following five sovereign wealth funds:
- $113 billion in RRRF (Retirement Plans Sinking Fund)
- $16.1 billion in the Generations Fund
- $1.37 billion in accumulated sick leave fund
- $455 million in the Land Information Fund
- $1.3 billion in SQ retirement plan employer fund
THE GENERATION FUND
In times of rising interest rates, why isn’t Treasury Secretary Eric Girard using the colossal sum of money that has accumulated in the Generations Fund to pay off the accumulated debt and thus save on interest costs – the Bank of Canada?
Martin V. is one of the many readers who asks a pertinent question such as, “It’s like having a nest egg in my checking account that he says will get me 0.25% interest while my mortgage goes up 4 % soon. »
At this time, when interest rates are constantly rising, we will agree that the moment seems more appropriate than ever to use the Generations Fund’s $16 billion for the purposes it was created for, which was to pay off part of our gargantuan $240 billion national debt Dollar.
The Treasurer of the Legault government will not, in my opinion, opt for such a strategy to repay the national debt. Like his predecessors as finance minister, he will instead leave the large treasury of the generation fund to the Caisse de depot et placement to grow.
It must be said that this strategy has paid off very well since the generation fund was created.
The rate of return generated by the Caisse de depot far exceeded the interest cost of financing the corresponding debt on the bond market.
As proof: since the first payment to the Generation Fund in 2007 until the end of 2021, the average return the fund has made with the Caisse is 6.3%. This is twice the average cost (3.1%) of loans made by the Quebec government on behalf of the Generations Fund.
Of the 15 years in question from 2007 to 2021, only 2008 turned out to be a loser.
The same was true of the other four funds entrusted by the Treasury to the Caisse’s asset managers.
Among all depositors of the Caisse de depot et placement du Québec, the number 1 is the FARR (Retirement Plans Sinking Fund) with a kitty of $113 billion. As at 31 December, the RPSF alone represented 26.9% of the Caisse’s net assets.
Over the past four years, RRRF has reported an average annual return of 8.9%.
RRRF had its worst year in 2008, posting a sharp 25.6% loss. This is the year that the Caisse was royally invested with its “fortune” in commercial paper.
At $113 billion, the RRRF’s assets represent only a few billion dollars of the present value of the pensions that the Quebec government will pay its hundreds of thousands of public and parastatal employees.
In the budget he presented last March, Treasury Secretary Eric Girard indicated that the amounts accumulated in the RPSF should exceed the liabilities (the present value of benefits payable) under the pension plans beginning in fiscal year 2025-26.
This means that from that moment on, the Quebec government can use RRRF’s assets to pay for its employees’ pensions. This reduces the need for credit.
Such a target obviously suggests that the Caisse will continue to report solid returns for years to come.
This is far from obvious in this year 2022, which has recently been hit by large falls in stock and bond markets.