© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the February 2005 edition of BENEFITS CANADA magazine.
The law governing Quebec’s Caisse de dépôt et placement gets a rewrite.

Quebec’s Liberal government has taken steps to ensure politics doesn’t drive investment decisions at the Caisse de dépôt et placement du Quebec, although a Caisse spokesperson denies it has ever been forced to put its money anywhere.

“The Toronto media have been saying that for some time,” says Isabelle Tremblay of the Caisse. “There’s nothing that prevents the Caisse from investing where and how it likes.”

Created in 1965, the $120-billion Caisse and its asset management arm, CDP Capital, manage Quebec’s Government and Public Employees Retirement Plan(RREGOP)and the Quebec Pension Plan. On November 11 last year, Bill 78— a proposed bill amending the law governing the Caisse—was introduced by Yves Seguin, the province’s finance minister.

Citing governance concerns, the revised Bill 78 will separate the positions of president and CEO and chairman of the board, and cut the maximum term from 10 to five years for each position. The board will also be no less than two-thirds composed of independent directors; previously, the president and CEO and chairman, as well as the board of directors, were appointed by the province. The Caisse will also adopt a new set of governance practices, and its board will create committees dealing with issues including governance and ethics, human resources and audit practices.

Henri-Paul Rousseau has served as the Caisse’s chairman and CEO as well as president of CDP Capital since 2002. His predecessor, Jean-Claude Scraire, resigned when he proposed similar measures to those in Bill 78 but was rebuffed by the then-Parti Quebecois government.

Critics of the Caisse point to two highprofile deals involving grocery chain Steinberg’s and cable television provider Groupe Videotron as situations where the desire to keep businesses owned by Quebecers trumped investment considerations. In 1989, the Caisse backed a deal to prevent the sale of Steinberg’s to a group of Toronto-based investors, instead awarding the chain to Michel Gaucher, a shipping entrepreneur. Steinberg’s later went into insolvency. In 2000, the Caisse went to court to block a bid for Videotron by Toronto’s Rogers Communications Inc.(which owns BENEFITS CANADA)and provided capital for a $6-billion rival bid by Montreal’s Quebecor Inc., an investment that eventually led to a billion-dollar writeoff at the Caisse.

“The CDP has always invested a lot abroad, but there definitely have been political considerations, too,” says Lawrence Kryzanowski, Ned Goodman chair in investment finance at Concordia University in Montreal. “I wouldn’t argue that they’ve done a poor job, but they could have done a better one,” he adds.

While Kryzanowski points out the Caisse has made some excellent investments and has a considerable amount of its assets invested both in other parts of Canada and internationally, the better governance practices proposed in Bill 78 are still sorely needed, he says. “You get a glimpse of what they’re up to once a year with their annual statement, but they should be updating the public more often then that.”

In keeping with the renewed focus on governance, the Caisse also announced it will discontinue its practice of paying for outside research with soft dollars, which are commissions levied above and beyond the cost of executing a trade. Tremblay says the move will bring more transparency to the Caisse’s trading costs. Soft dollars are often used to pay for investment research and other resources that the Caisse will now pay for directly out of its operating budget.

James Lewis