Big Quebec pension fund in political row over its investment policy
The Caisse de Depot et Placement du Quebec is one of the richest pension funds in Canada and the only government fund that invests in common shares. The Caisse, as it is known in English, is involved in two political battles, because its buying habits have upset governments and regulators.
Ottawa, in one battle, is trying to stop the Caisse from buying more than 10 percent of Canadian Pacific, Canada's biggest company. The Caisse owns 9.2 percent of Canadian Pacific of Montreal, the conglomerate that controls railways , shipping, mining, steel, an airline, and hotels. The chairman of CP, Frederick Burbidge, was concerned about ''backdoor nationalization'' by the Caisse, so he wrote a letter to Prime Minister Pierre Trudeau.
The federal government promptly put a law before Parliament, Bill S 31, that would limit a provincial government or agency from owning 10 percent of a company involved in transportation, which is a federal jurisdiction. The minister of consumer and corporate affairs in Ottawa, Andre Ouelette, is concerned that if a provincial agency takes over a company such as Canadian Pacific, it will work to get the company to solve provincial problems, such as forcing it to invest in Quebec-based projects to create jobs, not profit. The bill died in the last Parliament but is certain to be reintroduced in the fall.
The Caisse invests for the province the money collected by the Quebec Pension Fund, the provincial civil servants pension fund, the government automobile insurance fund, union checkoffs from construction workers, and other funds. The Caisse administers assets of $16 billion, which grow at about $2 billion a year. Only the Canada Pension Fund, operated by the federal government, is larger.
But it is the investment policy of the Quebec based-fund that makes it different and controversial. The Caisse invests up to 30 percent of its money in common stock of big publicly listed companies. The Canada Pension Plan invests only in government bonds. The Caisse has a stock portfolio of $3.20 billion and it is the largest pool of equity capital in Canada. Right now its stock portfolio is about 18 percent, but Caisse officials say they plan to increase that to 22 percent before the end of the year.
The Caisse was described by one broker as ''the best-run public pension fund in Canada.'' It is estimated that it outperforms its federal counterpart, the Canada Pension Plan, bettering its annual return by 1 percent or more.
The bulk of its portfolio - 65.7 percent of it - is in bonds. Of that, 78 percent is in Quebec government bonds, including the rich electric utility Hydro Quebec. It is this preponderance of provincial government debt which has led to charges that the Caisse is not as independent of the provincial government as it says it is.
Jean Campeau, chairman of the board and general manager of Caisse, denies allegations by CP and others that the fund is run by the government. ''The money that the Caisse de Depot invests comes from the people; it doesn't come from the government and we're not run by the government.'' Mr. Campeau is appointed by the government, and so are the members of his board. But he says they are independent.
Apart from Canadian Pacific, the Caisse is also the largest shareholder in Alcan Aluminium of Montreal, with 7.6 percent of the shares. It doesn't have a seat on Alcan's board and it hasn't asked for one.
The rest of the Caisse's portfolio reads like a who's who of Canadian business.
One thing most of the companies have in common is that they have operations in Quebec. But nationalism is not the only reason for the Caisse's investment philosophy. ''We're there for profitability and security,'' Mr. Campeau says. Caisse officials admit, however, that they prefer to invest in Quebec-based companies if possible. It's common sense, according to the Caisse's director of planning, Jacque Dumont. ''If with the same money we can get a good return and have on top of that some spillover effects, why not?''
The Caisse, in a second battle, raised the ire of the Ontario Securities Commission two years ago when, along with another Quebec government agency, it bought a 42 percent interest in Domtar, the pulp and paper company. The OSC has regulations about disclosing holdings when they exceed 5 percent, and it also insists that offers be made to minority shareholders when more than 20 percent of a company is acquired in a takeover. The Caisse ignored both those rules, saying it was not subject to the laws of the Province of Ontario. The OSC has banned the Caisse from buying and selling shares in Ontario; this has been good news for the smaller Montreal Stock Exchange, which now gets all the Caisse's Canadian business.
But in late July the Caisse won a major court battle when the Ontario Supreme Court ruled that it is not bound by the provisions of the Ontario Securities Act.
As with many other pension funds, the demography of the late 20th century could soon play havoc with cash flow at the Caisse. Quebec has the lowest population growth in Canada, so contributions to the funds that make up the Caisse will continue to be about $2 billion for the rest of the '80s. By the early 1990s there will probably be a net outflow.
When the cash starts to flow the other way, the traders who work in the glassed-in rooms on McGill College Avenue will be doing a lot more selling than buying and the Caisse's control over Quebec and Canadian industry will weaken. The aging population and the declining birthrate will ensure that.