Canada’s Caisse: A Year of “Painful Transition” and Real Estate Losses

(January 27, 2010) — Caisse de depot et placement du Quebec will report a year of “painful transition” when it releases its 2009 results in February.

US real estate markets continued to wreck havoc on Canada’s largest pension fund, which posted a loss of C$40 billion ($38 billion) in 2008. Chief Executive Michael Sabia told Montreal’s La Presse newspaper that losses from other “less liquid investments” amounted to C$1.7 billion, triggered by the demise in global financial markets. Caisse is expected to report a 6% to 7% return when it reports 2009 results, underperforming Canada’s other major pension funds, according to the Montreal Gazette.

Yet, Sabia also stated that the Montreal-based fund’s financials are much improved compared to a year ago.

“The Caisse has just lived through the most difficult time in our history,” said Sabia, hired last March to improve the fund’s dwindling fortunes, in a public letter. “The economic and financial environment has changed radically. As a result, we have had to make important changes.”

In the media statement released early this week, Sabia said that Caisse plans to invest only in financial instruments it has mastered. He said the fund has been actively working to double liquidity and cut financial exposure by C$20 billion. He outlined five priorities to be completed within the next 18 months to guide Caisse operations, which include establishing a new model of collaboration with customers and improving risk management capabilities.

In the last 10 months, Sabia, former chief executive of BCE Inc., has restructured the fund – six senior managers left and others were paid bonuses to stay, reported the Montreal Gazette. Sabia has leaned toward equities and long-term bonds, increasing the transparency of the fund, which will now report results twice a year instead of once.

Caisse manages $120 billion for a range of Quebec’s public and private pension fund investments. According to a survey of Canadian pension funds by Royal Bank of Canada’s RBC Dexia unit, the fund has returned an annual average of 3.1% in the past five years.