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The Caisse de depot et placement du Quebec (CDP) building is seen in Montreal, in this file photoCHRISTINNE MUSCHI/Reuters

The Caisse de dépôt et placement du Québec's top executive is warning that investors should brace for years of financial uncertainty, high risk and low returns, partly because of political instability in some parts of the world.

Chief executive officer Michael Sabia issued that sombre outlook Friday after Canada's second-largest pension fund manager said it managed to produce stable returns in the first six months of the year despite difficult global market conditions. The Caisse posted an average return of 2 per cent for the period ended June 30, compared with 5.9 per cent in the same period last year.

"The downside risks are probably greater than the upside opportunities in terms of global economic performance," Mr. Sabia said on a conference call with reporters Friday.

"We think the world is confronted with significant uncertainties."

The Caisse, which manages $255-billion on behalf of pension and insurance funds in Quebec, pointed to a range of issues roiling global markets. China is in the midst of an "economic rebalancing," becoming more reliant on consumer spending for growth and less dependent on business investment. Corporate profits in the United States have been sliding, and slow-growing Europe has taken "insufficient" measures to reform its economy, Mr. Sabia said.

In July, the International Monetary Fund marked down its estimates for world economic growth. The fund's latest forecast is for subdued growth of 3.1 per cent this year and 3.4 per cent next year, citing as one factor the June referendum in which the United Kingdom voted to leave the European Union.

"Over the past 12 months, the market environment has changed significantly and general uncertainty in the global economy has led to more volatility in stock and currency markets. Greater political instability in several parts of the world has added to the fundamental issues ... and points to weak global growth for the years ahead," Mr. Sabia said in a news release.

On the conference call, the CEO said that governments must step up efforts to bring in structural economic reforms, update immigration policies and make large investments in infrastructure renewal. But he also said there are investment opportunities to be had, citing the fallout from the Brexit vote as one example.

The Caisse has only about 4 per cent of its portfolio invested in Britain and a good chunk of it is in regulated, inflation-indexed assets such as infrastructure or else invested in well-diversified global companies, reducing the risk of any potential negative impact of Brexit, Mr. Sabia said.

The fund is carefully monitoring its investments there but not "looking for exit opportunities" and also keeping "a close eye on investment opportunities both in the U.K. and Europe. You've got to put on your opportunity glasses as much as you have to just tighten down your risk management," he said.

In results released Friday, the Caisse said its annualized return over a five-year span was 9.2 per cent, outperforming its benchmark portfolio, which stood at 8.3 per cent. For 2015, the overall return was 9.1 per cent.

The country's biggest pension fund, Canada Pension Plan Investment Board, said earlier this week that it posted net investment gains of 1.5 per cent in its first fiscal quarter of 2017, the three months ended June 30.

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