Caisse back in black

While the numbers are below its benchmark index by four points, the results represent a significant rebound from the fund manager’s dismal 2008 losses of almost $40 billion.

“We had a lot of issues to deal with at the start of the year,” says Caisse president and CEO Michael Sabia. “They’re dealt with. We put the train back on the track. Now we’ve got to get it up to cruising speed.”

Sabia explained that the Caisse actually beat the benchmark in the second half of 2009, possibly an indication that his efforts at reform are beginning to bear fruit.

The median return for Canadian pension funds with assets of more than $1 billion was 15.4% in 2009, according to RBC Dexia Investor Services. In a statement, the Caisse explained that short-term results now take a back seat to the bigger picture.

“We’re long-term investors,” says Sabia. “What matters for us and our clients is long-term results.”

Performance
Stocks, posting a return of 31%, were the main driver of returns for the Caisse in 2009. Stars of this asset class were emerging markets (up 50%) and Canadian equities (up 36%). Fixed income generated a return of 5.8% while private equity posted a gain of 17.5%.

However, real estate was a drag on overall performance with a -15.8% return, translating into a loss of $4.1 billion.

Referring to 2009 as a year of challenges, progress and evolution, Sabia explained that the Caisse has withdrawn completely from non-Canadian real estate debt, which drained $2.3 billion in assets in 2009. Derivatives exposure has also been trimmed by $15 billion, along with a complete divestiture of commodities and an overall streamlining of operating expenses and external management fees to the tune of 14%, or $43 million.

Overall, Sabia said the Caisse has strengthened its financial position and reduced its liabilities by 41.5%, or $27.7 billion. And, with the help of a new refinancing program, the fund manager replaced various short-term debt with $7.2 billion in longer-term debt, which better matches the duration of its financing sources and uses.

Sabia said his goal is to simplify the investment portfolio and refocus the Caisse on its core areas of expertise, including Canadian stocks, fixed income, private equity and real estate operations.

“Are we done? No,” he said. “Are we in much better shape than a year ago? Yes, tremendously better shape. [2008] will never be a happy memory, but we’ll at least try to make it a distant one.”

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