Caisse to Focus on ‘Less Liquid’ Assets, CEO Sabia Says

Caisse de Depot et Placement du Quebec, Canada’s second-largest pension-fund manager, will increase investments in assets such as real estate, infrastructure and private equity to reduce volatility in its returns, Chief Executive Officer Michael Sabia said.

“The markets are no longer a good gauge of value,” Sabia told reporters today during a briefing in Montreal. “Markets are a source of volatility. We think this volatility will last quite some time.”

The Caisse plans to add C$10 billion ($9.97 billion) to C$12 billion in what it calls less-liquid investments in the next two years, Sabia, 59, said. The Montreal-based fund manager seeks to have about 30 percent of its assets in private equity, real estate and infrastructure by the end of 2014, up from 25 percent.

“We have to find a replacement for the performance in fixed-income that will no longer be there,” Sabia said. “We want to stabilize the performance of the organization.”

The Caisse oversees pensions for retirees in the French- speaking province of Quebec, with a dual mandate to maximize returns and foster economic growth in the province. It had net assets of C$165.7 billion as of June 30, including about 37 percent each invested in publicly traded stocks and fixed income.

“Our objective is not to be spectacular,” said Sabia, who has been running the Caisse since 2009. “We are a long-term investor and what matters is the performance over three, five or 10 years.”

Alternative Assets

Canada’s pension funds have been looking to invest more in alternative assets such as infrastructure and real estate, said Scott MacDonald, head of pensions, insurance and sovereign- wealth strategy for RBC Investor Services. (RY)

“Elite-sized plans in Canada have been investing a disproportionate amount of their assets in real estate and infrastructure,” MacDonald said in an interview. “Those returns have been very high and that trend towards investing in those asset classes will continue.”

The country’s defined benefit pensions returned a median 9.4 percent in 2012, according to a survey by RBC Investor Services, a unit of Royal Bank of Canada.

Global Leaders

The Caisse also wants to build up a fund it started in January to buy stakes in companies it considers global leaders. It will add its holdings in Nestle SA (NESN), HJ Heinz Co. (HNZ) and Qualcomm Inc. (QCOM) into the fund, said Roland Lescure, chief investment officer, also speaking at today’s event.

The fund, which will account for about 10 percent of the fund manager’s assets, will hold onto its investments for the long term, he said.

The shift will come as the Caisse pares investments in traditional index investing. “In two to three years we will have fewer traditional equity investments,” Lescure said.

The Caisse plans to also increase investments in emerging markets, Lescure said. Emerging economies such as India and Brazil accounted for 5 percent of total assets at the end of 2011, according to the Caisse’s most recent annual report.

About C$41.2 billion of the Caisse’s assets are located in Quebec, according to the pension-fund manager’s 2011 annual report. The Caisse has invested in more than 530 Quebec companies.

SNC-Lavalin

Sabia said the Caisse plans to stand behind its investment in SNC-Lavalin Group Inc. (SNC), the Montreal-based company embroiled in corruption and fraud probes in Canada and abroad.

“SNC-Lavalin is tarnished because of what happened, but it’s a company worth building,” Sabia said. “They face some challenges but we will be there because we’re convinced of the potential.”

Canada’s largest engineering and construction company has been grappling with $56 million in incorrectly booked expenses and a former executive’s arrest in Switzerland amid a probe of corruption in North Africa. Former chief executive officer Pierre Duhaime faces fraud charges related to a Quebec hospital contract.

“This is a time when a long-term investor like the Caisse needs to help the company build a bridge to a different future,” Sabia said. “If we weren’t convinced of that we would have already exited.”

Canada Pension Plan Investment Board is the country’s biggest public pension manager, with net assets of C$170.1 billion as of Sept. 30.

To contact the reporters on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net; Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: Josh Friedman at jfriedman25@bloomberg.net; David Scanlan at dscanlan@bloomberg.net; Christian Baumgaertel at cbaumgaertel@bloomberg.net

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