Source: The Canadian Press

Canada’s largest pension fund manager said Thursday that it continued to slowly recover from the dismal results of the past as its assets grew 2.33% to $135.8 billion in the first half of 2010.

The Caisse de depot et placements du Quebec said it added $4.1 billion of value during the period ended June 30.

Chief executive Michael Sabia said the improvement was achieved even though markets were volatile, with sharp declines in global stock market indicators and significant concerns about European and U.S. economic outlooks.

“Despite this fact, the Caisse navigated this unfavourable environment well,” he said in a news release.

“We find it particularly encouraging that we could produce $4.1 billion in value added compared with the markets. This was largely due to the Caisse’s range of measures to solidify its foundations, add rigour to every activity and increase its flexibility.”

The 2.33% average return of the depositor funds compared to a negative 0.74% for its overall portfolio’s benchmark index. It outperformed the markets by 307 basis points or 3.07%.

In February, the Caisse said it earned an average return on its investments of 10.04% in 2009 thanks to a strong second half of the year.

Its assets climbed to $131.6 billion at the end of 2009. In 2008, the Caisse lost 25% or roughly $40 billion as its assets fell to $120.1 billion.

A survey by RBC Dexia has estimated that the assets of Canada’s pension fund managers fell by 1.4% in the first six months of 2010 due to faltering global equity markets.

A 3.2% decrease in the second quarter followed four quarters of positive returns.

Sabia said the Caisse’s performance this year indicates that its portfolios are “more robust and stable than before.”

“Despite our many achievements during the first half of the year, we still have much to do. Our goal is to provide consistent, long-term returns to our depositors,” he added, noting that markets are expected to remain volatile for some time.

During the first half, the Caisse conducted some hedging on its asset-backed commercial paper, which substantially reduced the portfolio’s attributable risk by about 45%.

It also proactively sold down its equity portfolios due to increased market risk, particularly related to the European crisis.

The Caisse eliminated its private equity portfolio debt and continued its strategy of reducing it in its real estate portfolio.

It completed an $8 billion financing program announced last fall. Proceeds were used to repay short-term debt and better match financing sources and financed real estate assets. The program did not increase the Caisse’s total leverage.

The Caisse said the four main factors behind the $4.1 billion additional value were the 14.7% return in its private equity portfolio, 6% return in its fixed income portfolios, 10.1% return from large investments in its infrastructure portfolio and a proactive underweight in equity portfolios.

The real estate portfolio had a slightly positive return following a gradual recovery in sector fundamentals since July 2009. The recovery was strongest in Canada and Britain.

The shopping mall and office building sector returns were positive in the first half of the year. The hotel sector, however, continued to decline.