Caisse dismissed

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by L. IAN MacDONALD
National Post, Saturday, February 28, 2009

The Quebec Model is broken and badly in need of fixing. Proof of this came with Wednesday's announcement that the Caisse de depot et placement du Quebec lost $40-billion, or 25% of its value, in 2008, making it the worst year in the 43-year history of the provincial pension fund.

From, $160-billion to $120-billion, just like that. So much for the pride of Quebec Inc.

Other public pension funds were off an average of 18% in the stock market crash last fall. Compared to the Caisse, they did relatively well.

For example, the more conservatively invested Canada Pension Plan was off only 7%, or $8-billion, from $117-billion to $109-billion in the horrific fourth quarter.

That's because the Caisse, in addition to its investments in equities as well as treasuries and bonds, also took a huge hit in its real estate portfolio, and a staggering loss in asset-backed commercial paper.

In other words, the Caisse invested in a lot of things where the only product was money chasing money, which became money losing money.

These guys were essentially playing Monopoly --and in divulging their results, also gave themselves a Get Out of Jail Free card.

For while there was a tone of regret at these lamentable numbers, there was no apology to the public for the scandalous loss of their money.

Indeed, outgoing acting president and CEO Fernand Perreault tried to brazen it out.

"We're not the only ones who lost so much money," he said. "Warren Buffett lost 30% last year."

The arrogance and insensitivity is breathtaking, to say nothing of the stupidity of comparing a public fund's performance to that of a private investor.

Craven apologies would have been more in order than an infuriating disclaimer.

Now the blame game begins, except that the two guys with the most to tell us are no longer around. Former CEO Henri-Paul Rousseau bailed last spring to join Power Corporation, at a time when he had basically doubled the value of the Caisse's portfolio on his five-year watch. His designated successor, former CFO Richard Guay, left after only two months on the job last fall, reportedly suffering from something like a nervous breakdown after the meltdown in global financial markets.

They'll both be in the dock at a special parliamentary commission called by the Charest government to preempt, though not quiet, the howling demands of the opposition, which wants to put Jean Charest himself in the box.

Parti Quebecois leader Pauline Marois has serious I-told-you-so money on this. During last fall's campaign, she repeatedly warned of an impending disaster in the Caisse's results, and demanded their early release. Charest stiff-armed her with a reply that he would respect the arms-length relationship betweem his government and the fund, and that the results would be released in due course at the end of February.

And here we are.

Other than the blame game, what is to be done? This is a major test of competence for Charest, a defining moment for his premiership.

First, Mr. Premier, stop making excuses for these guys, and stop the lame spin about the five-year average being positive. The truth is, in the pursuit of higher returns, the Caisse's portfolio managers screwed up, big time. The Caisse's board of directors should fire them all.

And there's a big part of the governance problem -- the board itself, which sat passively by throughout the unfolding disaster.

And here is both Charest's challenge and opportunity. As it happens, board chair Pierre Bruneau is a lame duck, and eight of 14 board seats are vacant. And the board names the CEO.

So, it's a three-step. First, Charest must name an outstanding outside chairman, someone whose reputation in finance and governance will restore lustre to the battered Caisse brand.

Second, four of the eight vacancies are for outside directors. Therein is an opportunity for the government to walk away from the cozy Quebec Model, based as it is on a pronounced pandering to vested institutional interests, from trade unions to credit unions. Outside directors from New York, London Paris and even Toronto, would broaden the parochial horizons of the Caisse.

And third: a new CEO, someone who inspires fear as well as confidence; someone, in short, to kick ass.

 
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