How great are the losses?

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National Post, Monday, January 12, 2009

The Caisse de depot is not only Canada's largest pension fund, it's the symbol of Quebec Inc., and of Quebec's ability to shape its own economic destiny.

You wouldn't think voters would be emotionally attached to anything other than the money the fund generates, but in Quebec the very size of the Caisse has been a source of pride rivaled by only one other public institution, Hydro-Quebec.

At $155-billion of market capitalization at the end of 2007, the Caisse had doubled in value over the previous five years. By comparison, the Canada Pension Plan (CPP) held assets valued at $119-billion at the end of March, 2007.

But there is no doubt the Caisse won't prove to have been worth anything like that at the end of 2008, a year that saw the value of the Toronto and New York stock exchanges shrink by a third.

If private pension plans aren't immune from the fall crash of 2008, why would public pensions be any different? They're not all invested in bonds and treasury notes; indeed the Caisse's aggressive investment policies have produced historically higher returns than its more conservatively invested cousin, the CPP.

Getting at the Caisse's results, or more precisely the extent of its losses, was a major issue in the recent Quebec election, a campaign that notably lacked issues on which the opposition parties got traction.

Not for lack of trying, by both Pauline Marois of the Parti Quebecois and Mario Dumont of Action democratique du Quebec, both of whom demanded that the Caisse's losses be revealed in the middle of the campaign. "It's our wool stocking," Marois said indignantly.

Day after day, Premier Jean Charest straight-armed the attacks, saying the Caisse's results would be revealed in the normal course of events, without political interference.

That would be on an annual basis, not a quarterly one, as certified by Quebec's auditor-general, at the end of February.

Well, that time is coming, and as one senior official in the Premier's office suggests, "no one would be surprised if the Caisse took at least a 15% to 20% hit last year; everyone else has."

Which, in the circumstances, would be a better performance than many other pension funds, though not better than 90% of them, as was the case in 2007.

A 20% hit would shrink the value of the Caisse's portfolio to $125-billion -- a $30-billion loss in a single year. Not only would it be a big headline, but it would be a blow to Quebecers' pride in the Caisse, and a cause of political heartburn for Charest.

The fevered speculation over the extent of the Caisse's market losses last year comes in the middle of an unexpected succession crisis.

Richard Guay, the former number two at the Caisse, was the board's choice to succeed former CEO Henri-Paul Rousseau, who left last June after a successful five-year reign. Guay took office in September, just as the stock market cratered, and by the next month he had already taken medical leave. Now he has resigned after only four months on the job and the board must find another replacement. Guay's interim successor, Fernand Perreault, is the head of the Caisse's real estate division.

This interregnum at the top occurs at a time when seven of the Caisse's 14 board seats are up for reappointment. One is traditionally held by the head of Quebec's largest labour union, the Federation des travailleurs et travailleuses du Quebec, which has its own "wool stocking," the Fonds de solidarite. Another is held by the CEO of the Mouvement Desjardins, the credit union which accounts for half of all the commercial banking in Quebec. Such is the nature of Quebec Inc.

In a perfect world, the Caisse would function entirely at arm's length from the government. However, the Charest government has given the Caisse a two-part mandate, first to maximize its economic value, and second to contribute to the economic well being of Quebec.

However you look at it, the Caisse isn't going to do very well on either front in 2008.

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