Did you know that the Quebec government is one of the major financial speculators?
He plays the stock market on margin… while the mountain of money he entrusts to the portfolio managers of the Caisse de depot et placement is financed by issuing government bonds.
Like any good seasoned speculator, his challenge is to obtain a return with the Caisse that is higher than what it costs him to borrow that mountain of money on the bond market.
Of the 46 depositors who entrust their money to the Caisse de depot et placement du Québec, the Department of Finance holds the largest assets.
As of December 31, we are talking about an astronomical total of $132 billion, distributed among the following five government funds:
- $113 billion in the RRRF (Retirement Plans Sinking Fund)
- $16.1 billion in the Generations Fund
- $1.37 billion in the Accumulated Sick Leave Fund
- $455 million in the Land Information Fund
- $1.3 billion in the Employer Fund of the SQ Pension Plan
THE GENERATIONS FUND
Why is the Minister of Finance, Eric Girard, not using the colossal amount of money accumulated in the Generations Fund to pay off the accumulated debt and thus save interest costs in this period of soaring key interest rates? the Bank of Canada?
Martin V. is one of the many readers who ask themselves a relevant question such as: “It’s as if I had a nest egg in my current account which, he says, brings me 0.25% interest while my mortgage was going to go up to 4% soon. »
In this period when interest rates are constantly rising, we will agree that the moment seems more appropriate than ever to use the $16 billion of the Generations Fund for the purposes for which it was created, namely to reimburse a portion of our gigantic government debt of $240 billion.
In my opinion, the treasurer of the Legault government will not opt for this kind of strategy for repaying the government debt. Like his finance minister predecessors, he will instead leave the big kitty of the Generations Fund in the hands of the Caisse de depot et placement with the aim of making it grow.
It must be said that this strategy has paid off, very well, since the creation of the Generations Fund.
The yield obtained by the Caisse de depot greatly exceeded the interest costs it costs to finance the corresponding debt on the bond market.
As proof, since the first payment to the Generations Fund in 2007 until the end of 2021, the average return that the Fund has obtained with the Caisse is 6.3%. This is twice as much as the average cost (3.1%) of loans contracted by the Québec government on behalf of the Generations Fund.
Of the 15 years in question, from 2007 to 2021, only the year 2008 turned out to be a loser.
The same was also true for the four other funds that the Ministère des Finances entrusts to the Caisse’s portfolio managers.
WITH MORE
Of all the depositors of the Caisse de depot et placement du Québec, number 1 is the FARR (Retirement Plans Sinking Fund) with a kitty of $113 billion. On December 31, 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 heavy loss of 25.6%. This is the year when the Caisse was royally planted with its “assets” in commercial paper.
At $113 billion, the assets of the RRRF are only a few billion $ close to the present value of the retirement benefits that the Quebec government will pay to its hundreds of thousands of public and parapublic employees.
In the budget he tabled last March, Finance Minister Eric Girard indicated that the sums accumulated in the RPSF should exceed the liabilities (the present value of the benefits to be paid) under the pension plans from the financial year 2025-26.
This means that from that moment on, the Government of Quebec will be able to use the assets of the RRRF to pay the retirement benefits of its employees. This will reduce its borrowing needs.
Such an objective obviously suggests that the Caisse will continue to report a solid return over the next few years.
This is far from obvious in this year 2022, which has recently been hit by major declines in the stock market and the bond market.
