Did you know that the Quebec government is one of the main financial speculators?
He plays on the stock exchange on the sidelines … while the mountain of money that he entrusts to portfolio managers at Caisse de Depot et placement is financed by the issuance of government bonds.
Like any seasoned speculator, his challenge is to get a yield from Caisse higher than what it would cost to borrow that mountain of money in the bond market.
Among the 46 depositors who entrusted their funds to Caisse de Depot et placement du Québec, the Ministry of Finance has the largest assets.
As of December 31, we’re talking about an astronomical total of $132 billion, spread across the following five government 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 employer fund for SQ retirement plan
Why doesn’t the Finance Minister, Eric Girard, use the huge amount of money accumulated in the Generations Fund to pay off the accumulated debt and thus save interest costs in this period of high prime interest rates? Bank of Canada?
Martin V. is one of many readers who ask themselves a related question like: “It’s as if I had savings in my checking account, which, he says, earns me 0.25% interest while my mortgage would have gone up to 4%. thus. ”
In this period of ever-rising interest rates, we will agree that the moment seems more opportune than ever to use the $16 billion of the Generations Fund for the purposes for which it was created, that is, to repay part of our massive $240 billion government debt.
In my opinion, the Legault government treasurer would not choose this kind of strategy to pay off the government debt. Like his predecessors as Finance Ministers, he will leave the large fund of the Generations Fund in the hands of Caisse de depot et placement with the aim of making it grow.
It must be said that this strategy has paid off well since the establishment of the Generations Fund.
The yield earned by Caisse de Depot exceeded the interest costs it would cost to finance the corresponding debt in the bond market.
As evidence of this, since the first installment of the Generation Fund in 2007 until the end of 2021, the average return that the Fund received from the IMF was 6.3%. This is twice the average cost (3.1%) of the loans the Quebec government contracted on behalf of the Generations Fund.
Of the fifteen years involved, from 2007 to 2021, only 2008 was the loser.
The same is also true for the other four funds entrusted by the Ministry of Finance to Caisse Portfolio Managers.
Of all depositors in Caisse de Depot et placement du Québec, number 1 is FARR (Retirement Plan Sinking Fund) with a fund of $113 billion. On December 31, RPSF alone represented 26.9% of Caisse’s net assets.
Over the past four years, the RRRF has reported an average annual return of 8.9%.
RRRF had its worst year in 2008, posting a massive 25.6% loss. This is the year Caisse royally planted her “assets” in commercial paper.
At $113 billion, the RRRF’s assets are only a few billion dollars close to the present value of the retirement benefits that the Quebec government will pay to hundreds of thousands of public and semi-public sector employees.
In his budget submission last March, Treasury Secretary Eric Gerrard indicated that the amounts accrued in the Federal Reserve Fund should exceed obligations (the present value of benefits to be paid) under pension plans for the 2025-26 fiscal year.
This means that from that moment on, the Quebec government will be able to use the assets of the RRRF to pay retirement benefits to its employees. This will reduce borrowing needs.
Obviously, such a target indicates that Caisse will continue to report a strong return over the next few years.
This is far from clear in this 2022 year, which was recently subjected to significant declines in the stock market and the bond market.
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