Quebec is speculating with… 132 billion!

Quebec is speculating with... 132 billion!

UPGRADE DAY

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 with the Caisse a return 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 Ministère des Finances holds the largest assets.  

As of December 31 last, we are talking about an astronomical total sum of 132 billion dollars, distributed among the following five government funds:  

  • $113 billion in the FARR ( Retirement Plans Sinking Fund) 
  • $16.1 billion in the Generations Fund  
  • $1.37 billion in the Accumulated Sick Leave Fund 
  • $455 million in the Territorial 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, earns me 0.25% interest when 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 $240 billion government debt.  

In my opinion, the treasurer of the Legault government will not opt ​​for this kind of strategy for repaying the government debt. Like his predecessors as Ministers of Finance, he will instead leave the big kitty of the Generations Fund in the hands of the Caisse de depot et placement in order to make it grow.  

It must be said that this strategy has paid off, very well, since the creation of the Generations Fund.  

The return provided by the Caisse de dépôt has far exceeded the costs interest that 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 borrowings contracted by the Government of Quebec on behalf of the Generations Fund.  

Over the 15 years in question, 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.  

THE FARR 

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 RRRF alone represented 26.9% of the Caisse's net assets.  

Over the past four years, the RRRF has returned an average annual return of 8.9%.  

The RRRF had its worst year in 2008, posting a heavy loss of 25.6%. %. It was the year when the Caisse was royally planted with its “assets” in commercial paper.  

At $113 billion, the FARR's assets are no more than '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 RRRF should exceed the liabilities (the present value of the benefits to be paid) under the pension plans from the fiscal year 2025-26.  

This means that as of that time, the Government of Quebec will be able to use the assets of the RRRF to pay the retirement benefits of his 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.  

Which is far from obvious in this year 2022, which has recently been hit by significant declines in the stock market and the bond market. 

Quebec is speculating with... 132 billion!