Quebec's Caisse sees weak global growth, eyes UK opportunities

August 12, 2016 1:08 PM EDT

The Caisse de depot et placement du Quebec (CDP) building is seen in Montreal, February 26, 2014. REUTERS/Christinne Muschi

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By Matt Scuffham

TORONTO (Reuters) - Caisse de depot et Placement du Quebec, Canada's second-biggest public pension fund, warned of weak global growth in the years ahead after market volatility led to a sharp fall in its investment return in the first half.

The Caisse, which manages pension plans in the mostly French-speaking province of Quebec, said on Friday its average return fell to 2 percent from 5.9 percent in the same period the year before.

The pension fund said the performance was ahead of a 1.3 percent return from the benchmark portfolio against which it measures itself. Net assets grew to C$255 billion ($197 billion) at the end of June, up from C$248 billion at the end of 2015.

The market environment changed significantly over the past year and global economic uncertainty led to more volatility in stock and currency markets, Chief Executive Michael Sabia said in a statement.

"Greater political instability in several parts of the world has added to the fundamental issues - economic rebalancing in China, lower corporate profits in the United States, insufficient reforms in Europe - and points to weak global growth for the years ahead," he said.

On a conference call, he expressed concern about the impact Britain's vote to leave the European Union will have on the rest of Europe, but said the vote's fallout could present opportunities if valuations fall.

"We'll continue to look at this situation as presenting at least as many opportunities as it does challenges. We're going to keep a close eye on investment opportunities both in the UK and potentially in Europe," Sabia said.

The Canada Pension Plan Investment Board warned on Thursday of ongoing uncertainty from the UK vote, which curbed gains in its investments during the last quarter.

Since Sabia was appointed in 2009, the Caisse has sought higher returns by investing a larger percentage of its funds in assets such as infrastructure and real estate as an alternative to equities and low-yielding government bonds.

The fund is one of the world's ten biggest investors in infrastructure and real estate, but equities and bonds still make up the majority of its investments.

Fixed-income investments produced a 3.8 percent return during the period, with investments in assets like real estate and infrastructure producing a 2.5 percent return. The fund made a 1.4 percent return from its equity investments.

(Reporting by Matt Scuffham; Editing by Bernard Orr and Jeffrey Hodgson)

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