Quebec’s Caisse earns average return of 3.5% on first half of 2012

“It’s a number we think is very well lined up with the needs of our depositors and the performance of others and, indeed, . . . well lined up with our reference portfolio,” Sabia said during a conference call.

When looking at the Caisse’s performance for the first six months of the year, “we’re very, very comfortable” with it, Sabia said, because the gap between the return and the benchmark is “minimum.”

“For us, it’s almost the same thing,” he said.

The Caisse said its net assets reached $165.7 billion at the end of June, up $6.8 billion from $159 billion at the end of 2011.

The fund’s investments contributed $5.4 billion to the increase and depositors made a net contribution of $1.4 billion.

Over a three-year period, the Caisse said it posted a 10.5% average annual return. It said all major asset classes had positive returns for the three-year period, surpassing their benchmark.

Sabia said the Caisse isn’t anticipating a global recession but does see risks in Europe, China and the United States, although it is essentially political, not economic risk.

Shortly before issuing its financial report, the Caisse announced it had decided to sell part of its stake in U.K. airport operator BAA for C$393.6 million, as part of a larger transaction.

The Caisse will continue to have a 15.55% stake in BAA, down from 21.18%. The Caisse says the transaction will allow it to rebalance and further diversify its portfolio of infrastructure assets.

Earlier this summer, the pension fund manger said it would become more selective in its stock market picks and put more emphasis on private placements in infrastructure and real estate.

The changes would be made gradually as the pension fund manager does more in-depth study on its investments to keep volatility in check, Sabia has said.

More recently, the fund has become embroiled in the controversial $1.76-billion unsolicited takeover bid late last month by U.S.-based home improvement retailer Lowe’s for Quebec-based Rona (TSX:RON).

Sabia told the conference call that he couldn’t comment on whether the Caisse would buy any more shares in Rona, but noted the value that Rona brings to the Quebec and Canadian economies.

However, he said value has to be created for Rona’s shareholders and it’s a “priority” to improve the company’s performance.

“Those will be the things that guide our decision-making with respect to this going forward.”

Rona has said it isn’t interested in the $14.50 per share offer, which would give Lowe’s a bigger foothold in Canada, but which Rona says undervalues the company. The Quebec government has also criticized the bid as not in the best interests of either province or Canada and is examining ways to counter the Lowe’s offer.

The Caisse, for its part, quickly announced it had increased its stake in Rona by two percentage points to 14.2% as it noted the economic benefits of having Rona’s head office in the province.

The powerful Caisse has acted before to protect interests it sees as vital to Quebec’s economy. In 2000, the Caisse did not support a bid by Rogers Communications Inc. (TSX:RCI.B) to buy Quebec cable company Videotron and joined forces with Quebecor Inc. (TSX:QBR.B) to thwart the Toronto company’s bid.