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Caisse Lagging its Peers?
Submitted by Leo Kolivakis, publisher of Pension Pulse.
I
was going to wait for CPPIB to post their quarterly results, but I am
going to go ahead and discuss some of the articles that came out on the
Caisse today.
Bertrand Marotte of the Globe and Mail reports that Quebec's Caisse lags its peers:
The
Caisse de dépôt et placement du Québec will likely lag other major
pension funds this year because it missed out on the stock market
rebound, says the province's Finance Minister.
“I don't expect the
Caisse to outdo the markets this year,” Raymond Bachand said Wednesday
in an interview with Radio-Canada television.
“The Caisse was
underweight in stocks, and given that stock markets have rebounded
considerably, the Caisse's results will certainly not exceed those of
competing pension funds or industry peers,” he said.
The comments were made after La Presse reported
Wednesday that the Caisse is in line to post a return on investments of
about 5 or 6 per cent for 2009, compared with an average increase of 10
to 12 per cent for Canadian pension funds. The article cited
unidentified sources.
The Caisse reported a staggering $40-billion loss
on its investments last year, equal to a negative return of 25 per
cent, compared with an average return of minus 18 per cent for its
rivals.
Stung by its sizable exposure to currency and futures
contracts, as well as the decimated third-party commercial paper
market, the Caisse under new chief Michael Sabia moved to install more
stringent risk management systems.
It also made major
management changes and did not hire a new chief investment officer
until July of this year, months after the big rebound in the stock
market.In August, the Caisse reported that it suffered a
difficult first half of the year, with $5.7-billion in writedowns
related to risky commercial real estate loans and private equity bets.
The writedowns wiped out the 5 per cent return the Caisse had earned on
other investments to June 30, resulting in a “neutral” performance
overall up to that date.
Mr. Bachand said he continues to
have full confidence in Mr. Sabia and the corrective measures he has
taken at the pension fund giant.
The Caisse is expected to report its 2009 results in February.
Bloomberg also reported that the Caisse’s 2009 Return Set to Trail Canadian Funds, adding:
Stock
markets have climbed this year amid growing investor optimism that the
world economy is poised to emerge from recession. As of the close of
trading yesterday, the Dow Jones Industrial Average gained 17 percent
this year, while Canada’s benchmark Standard & Poor’s/TSX Composite
Index rose 27 percent.
Canadian
pension funds earned an average 14 percent on investments in the first
nine months of 2009, according to a survey by RBC Dexia Investor
Services. Pension funds polled by RBC Dexia manage a combined C$310
billion.
As of the end of 2008, the Caisse had about 22
percent of its net assets invested in stocks, or C$26.4 billion, and 12
percent in private equity. Caisse spokesman Maxime Chagnon didn’t
immediately return a message today seeking comment on Bachand’s
remarks.
Finally, this evening the CBC reported that the Caisse denies it missed market rebound:
Canada's
largest pension fund manager rejected criticism Wednesday that it's
lagging behind the rest of the country because it missed out on the
strong stock-market rebound.
The
Caisse de dépôt et placement du Québec had 34 per cent of its assets in
the market at the end of September, compared with 22 per cent at the
end of 2008, a spokesman for the Quebec-based manager said.
Maxime
Chagnon declined to divulge the Caisse's yield up until Sept. 30 but
denied a report in the La Presse newspaper that said it is expected to
pull in a five or six per cent return on investment for all of 2009
while other Canadian pension funds are on target for an average of 10
to 12 per cent.
"We have rebuilt our position on the stock
markets," Chagnon said of the pension fund manager's approach since the
arrival of CEO Michael Sabia in mid-March.
Chagnon
said the Caisse transferred $8.5 billion of its fixed-income
investments, primarily bonds, into shares between the end of March and
the end of September.
In August, the Caisse announced it would revamp its real estate arm and abandon riskier commercial loans after $5.7 billion in losses wiped out other gains during the first half of 2009.
The
pension fund manager said $4 billion of the losses were in real estate,
including $1.7 billion in other less liquid, riskier, investments.
As of June 30, it also lost $1.3 billion from private equity and $400 million in asset-backed commercial paper.
Chagnon also brushed off La Presse's argument that Sabia's tighter risk management style is to blame for the losses.
Here are my comments. I read the article in La Presse (Caisse delivers mediocre results in 2009)
and it was pathetic. This is a perfect example of sloppy reporting
which totally distorts what is really going on at the Caisse.
The
article cites Mr. Sabia's focus on risk management as the reason behind
its "lagging performance". True, Mr. Sabia is focusing on risk. But
what the article neglects to mention is that the Caisse is focusing on risk-adjusted returns
and looking carefully at how all their internal and external portfolio
managers are correlated, stress-testing their portfolios for liquidity
events.
Mr. Sabia is also cutting risk in private markets. It's
hardly surprising to see the bloated private equity team being trimmed
down. You can't pay people if they're not delivering the results.
They're regrouping and focusing their attention on making money without
taking stupid risks.
As far as overall results, I don't know how the Caisse will perform relative to its peers, nor do I really care. In order to properly compare pension funds' performance, we need transparency in benchmarks and risk budgets.
I've
said it before and I'll say it again, there is this parochial mentality
in some segments of Quebec's establishment that is just anachronistic
and self-destructive. I was there when Quebec's media made a huge
splash about Henri-Paul Rousseau and how he was going to "save the
Caisse". The "savior" ended up getting roasted at Quebec's pension hearings.
What's truly mediocre in Quebec is the media's pathetic coverage of the Caisse under Michael Sabia. If he isn't having second thoughts, it means he's ready to deliver on his promise and deal with his critics, which includes Quebec's media mafia.
I wish him all the best. He's going to need nerves of steele to put up with all the bullshit they're going to throw his way.
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Leo, you were bang on. Greed is overcoming fear, thanks to this liquidity driven rally.
I gave up reading MSM for financial news because it's analysis is woefully inadequate. I think we should expect more than the typical horse race commentary that we also see in political reporting. Pathetic. It contributes to the dumbing down of society. Thank heavens we have sites like this with intelligent analysis and commentary for those of us who want more. Keep up the good work.
Wow, I think that you should definitely re-publish this on a 'Quebec media mafia' website. Otherwise almost nobody in Quebec will see your op.
Wow, I think that you should definitely re-publish this on a 'Quebec media mafia' website. Otherwise almost nobody in Quebec will see your op.