The Caisse de dèpôt et placement du Quèbec announced a 25% decrease in returns for 2008.
The net investment results were down $39.8 billion, 56% of which is unrealized decreases in value. These losses have cancelled out a large portion of the $63.2 billion in returns that the Caisse were earned in the last five years.
After five consecutive years of first-quartile returns, the Caisse’s losses for 2008 are significantly greater than the -18.4% median loss for large Canadian pension funds that have at least $1 billion of assets.
Several factors that led to these increased losses were the cost of foreign exchange risk hedging and the additional provision for asset-backed commercial paper (ABCP).
“As with all other investors, the first element that explains our return this year is the global financial crisis that broke out in the fourth quarter,” said Fernand Perreault, president and chief executive officer of the Caisse. “But certain factors had a specific or more pronounced impact on our portfolio, such as our large holdings of ABCP and the cost of hedging the foreign exchange risk of our assets outside Canada, which increased significantly as the Canadian dollar fell.”
As a way to protect itself from the backlash of the financial crisis, in October 2008 the Caisse sold some equities, closed out futures contracts and reduced its foreign exchange hedging to increase its liquid assets and reduce its stock market exposure.
“Given the markets’ volatility since the end of 2008, these decisions significantly improved our overall positioning,” Perreault explained. “The rebalancing of the portfolio toward equities will take place gradually as a function of our assessment of the various markets and in cooperation with our depositors.”
Unrealized decreases (paper losses) totaled $22.4 billion in 2008. Net investment income, including interest income, dividends and rent, amounted to $5.8 billion. Realized losses on the sale of investments during the year totaled $23.2 billion, including $6.1 billion for the realized portion of the cost of foreign exchange risk hedging alone.
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CIBC Offers RDSP
CIBC has announced that it will join the ranks of other banks and offer registered disability savings plans to eligible customers.
“The RDSP is an effective way for clients with disabilities and their families to save for the future and make the most of government grants and bonds, all the while deferring tax on the plan’s earnings and growth,” said Jamie Golombek, managing director of tax and estate planning with CIBC.
The RDSP is similar to the registered education savings plan in that contributions are not tax-deductible but growth within the plan is tax-deferred. Canada disability savings grants (CDSG) and Canada disability savings bonds were designed to augment assets held within the RDSP.
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C.D. Howe Says Scrap 30% Limit on Voting-Equity Stakes
According to a paper released by the C.D. Howe Institute, In a Matter of Voice: The Case for Abolishing the 30% Rule for Pension Fund Investments, regulators should eliminate the rule that limits pension funds from holding more than 30% of the voting equity in a corporation.
The paper claims that the 30% rule is impedes to the investment decisions of Canadian pension plans. It argues that the rule should be eliminated in favour of greater reliance on a principles-based approach.
The Institute’s three main arguments against the rule are:
•The rule is only subject to superficial compliance as regulators have allowed companies to work around the rule, resulting in unnecessary complexity and increased transaction costs,
•No other OECD jurisdiction has a similar rule and Canadian plans are at a disadvantage relative to foreign competitors,
•There are governance problems that result from disaggregating ownership from control.
The paper suggests that a better method than using quantitative restrictions is to rely on prudent person standards that will allow managers to use their expertise and discretion in constructing their portfolios.