Quebec’s public pension manager reported a 7.2 per cent return in 2023, as losses in real estate detracted from big gains in its credit and stock portfolios.

Caisse de Depot et Placement du Quebec has restructured its real estate business, shifting capital to apartments and industrial properties, but it wasn’t enough to offset problems in the office sector. The fund manager posted a 6.2 per cent loss on its $46 billion property portfolio — the only asset class for which it had a negative return last year. 

Nathalie Palladitcheff, the head of Ivanhoe Cambridge, CDPQ’s real estate arm, described last year’s environment as “hostile.” High interest rates and low occupancy have created a difficult outlook for office owners and their lenders, with more than $1 trillion in commercial real estate loans set to mature by the end of next year.

“The increase in rates impacts both the valuation and the cost of debt, and this resulted in a very significant drop in transactional volumes on a global scale,” Palladitcheff said, referring to the broader real estate market. “They have been halved in Europe, halved in the United States, even an 80 per cent drop in transactions in Germany, for example.”

In equity markets, Canada’s second-largest pension fund benefited from its high exposure to the technology sector with a 17.7 per cent gain. But CDPQ’s private equity portfolio recorded just a 1 per cent increase, as rising financing costs impacted private companies.

The fund’s net assets grew by $32 billion to end last year at $434 billion. It’s a shift from 2022’s results, when the firm posted its worst annual return since the global financial crisis.

CDPQ’s assets under management have grown by almost $100 billion since the beginning of 2020.

“We may reach a crossroads in the year ahead, with many central banks likely to pivot, but the scope and sequence remain unknown,” CDPQ Chief Executive Officer Charles Emond said in a statement. “With a backdrop of downward but persistent inflationary pressure combined with lingering volatility, our portfolio remains well-positioned to keep delivering the long-term returns our depositors need.”