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Caisse needs to look beyond Quebec firms

"Why should your savings go to a narrow pool of Quebec interests ?"

mercredi 20 mai 2009

By PETER HADEKEL, Opinions are a dime a dozen these days on how to run the Caisse de dépot et placement, Quebec’s troubled pension fund manager.

Yesterday, former chief executive Henri-Paul Rousseau heard a bunch as he was grilled by a National Assembly committee on his role in the $40-billion loss at the Caisse.

Rousseau, who left a year ago to join Power Corp., is widely blamed for steering the pension fund manager into risky and money-losing investments on asset-backed commercial paper.

The result was billions in writedowns and a liquidity shortage that hurt the Caisse’s ability to trade stocks and bonds.

The debacle has led to a predictable feeding frenzy among opposition politicians, many of whom have been become instant experts on investment management.

In their haste to reform the Caisse, they’re pushing some questionable ideas. Consider one from PQ finance critic François Legault.

In an opinion published by La Presse, Legault proposes a new "vision" for the Caisse that would see it become a kind of provincial investment bank, favouring long-term investments in key Quebec companies.

This, argued Legault, would help keep the major companies in the province headquartered here and allow them the financial backing to make acquisitions rather than risk being acquired themselves.

"Quebec at most has about 40 key enterprises," he wrote. "They are vulnerable to takeovers by foreign interests, especially now that share prices have dropped on the stock market."

Quebec is more "fragile" than other economies because it doesn’t have a long tradition of entrepreneurship or a pool of family fortunes on which to build big companies, he said, so the Caisse can fill that vacuum.

Now, you can see the appeal of Legault’s populist pitch. The public has soured on free markets and unfettered capitalism. After all, it was the go-go, performance-first culture under Rousseau that got the Caisse into trouble in the first place.

What easier way to frame the argument than to decry free-market capitalism and the pursuit of maximum returns while advocating a new Caisse that would put the Quebec economy first ?

Let’s be careful here. The Caisse does need reform as it picks up the pieces under new boss Michael Sabia, but it’s not the kind of reform Legault envisions.

What the Caisse really requires is a new way to balance reward and risk. Shoot for the best returns, but do so in a way that doesn’t mortgage Quebec’s retirement savings.

Performance is not a dirty word, it’s what all Quebecers expect when they confer their pension savings to the Caisse.

And investment performance must remain the
primary goal, as long as it’s accompanied by proper risk controls and conflict-of-
interest rules - which seemed sadly lacking under Rousseau’s reign.

The trouble with Legault’s vision is that it has already been tried - with disappointing results. Since its inception, the Caisse has bankrolled a number of big acquisitions that were designed to keep Quebec companies out of the clutches of outside buyers.

At least a couple of those high-profile investments - in Steinberg Inc. and Vidéotron - turned out badly. Economic nationalism is rarely a paying strategy on the stock market.

You can also question the notion that the province’s corporate sector, known as Quebec Inc., needs the state as a banker. Why should your savings go to a narrow pool of Quebec interests rather than be invested in a broadly diversified pool of assets ?

Legault may worry about the fragility of Quebec-owned companies. But a far bigger problem is the looming funding gap in the Quebec Pension Plan, which invests its deposits with the Caisse.

The QPP alone lost $9 billion last year because of the Caisse’s poor investment decisions. Surely, Legault’s first priority should be policies that will restore growth and make up that shortfall to pensioners.

On that score, he should pay attention to something Rousseau said yesterday in his appearance before the National Assembly committee. The Caisse, Rousseau noted, has trouble recruiting and retaining qualified experts.

Rather than playing politics with our savings, a good first step would be to give the Caisse the resources it needs to attract the best investment talent. Quebecers deserve no less.

***

phadekel TLo videotron.ca


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