Monday, January 16, 2012

Caisse Looking For More Club Deals?

A follow-up to my earlier comment on Canadian pension funds as trendsetters. Pav Jordan of Reuters reports, Canada pension funds are stronger together, Caisse says:
The head of Canada's most storied pension fund wants rivals to be partners as debt-laden governments offload assets, and says a recent bid with two other pension funds for the nation's leading stock market operator is a good start.

"The longest journey begins with a single step," Michael Sabia, chief executive of the nearly 50-year-old Caisse de depot et placement du Quebec, told Reuters in an interview from its headquarters in the francophone city of Montreal.

The Caisse and three other pension fund administrators joined forces with some of Canada's largest banks to bid for TMX Group, owner of the Toronto Stock exchange.

The C$3.8 billion ($3.72 billion) deal still requires regulatory approval, but it shows a shift in mindset for funds that in the past rarely worked in such large groups.

"It's a process. ... You start with small stuff and then you do slightly bigger stuff and then people start phoning each other and they learn that having dinner together is a good idea. That's how it works," said Sabia, one of Quebec's best-known business leaders.

Sabia, described as a workaholic by his staff, exudes zen-like serenity as he looks out over the city from Caisse headquarters on the edge of Montreal's Old Town.

"The way it has to work is that organizations have to learn to work together," said Sabia, who joined the Caisse after serving as chief executive of BCE, parent of Bell Canada.

Canadian pension funds emerged from the 2008-09 economic crisis as some of the biggest players on the world stage, second only to sovereign wealth funds in size. The top five funds manage more than half a trillion dollars in assets between them, giving them the heft and focus to acquire the massive infrastructure projects hitting the market.

"Nobody wants to deal with a fund that says, 'Well, I'm in for 25 million,'" said Sabia. "You've got to be in for 250, 500, 600 million dollars."

Funds such as the Caisse could swallow many an infrastructure project whole, regardless of the size, but few would want to shoulder such risks without strong partners.

"We are talking about areas where we can cooperate or do some things between the various funds," said Sabia, who occasionally slips into French, and refers almost reverently to his employer as "La Caisse."

He said the fund is working on at least one deal with another large Canadian fund, but would not give further details.

"We'll be able to do some club deals among the Canadian pension funds, that is something that we are very interested in doing."

CHAPTER TWO

Having brought the Caisse de depot et placement du Quebec back from a C$40 billion loss in 2008, Sabia is realigning strategy again, a fresh push that he calls Chapter Two.

The C$152 billion pension fund will hire more talent to develop the kind of expertise in other asset classes beyond the one that helped it build one of the world's largest real estate portfolios, worth C$40 billion at last count.

"We need to build, and we are, similar capabilities in operations associated with infrastructure," said Sabia. "We need to understand what makes for good operations of a pipeline, of an airport."

In November the Caisse announced an $850 million deal to buy ConocoPhillips's 16.55 percent stake in Colonial Pipeline Company, the largest refined petroleum products pipeline in the United States.

That came barely two months after it spent 210 million euros ($268.74 million) to double its stake in the European gas infrastructure company Fluxys G.

Does it make sense for large Canadian pension funds to team up and work together on private equity or infrastructure deals? That all depends on the size of the deal. If they can go it alone, it doesn't make sense. Neil Petroff at OTPP made this crystal clear to me when I met him in June.

But if Canadian pension funds are going to be delving into large infrastructure projects, it makes sense to pool their resources and team up on these 'club deals'. Sabia is right about that and I hope they do hire more expertise in infrastructure because I already have the best candidate for them with hands on operational experience and a vast network of contacts with top executives from European infrastructure giants in Spain, France and Germany.

In my world, talk is cheap. Club deals or no club deals, you better deliver results and to do that you need to hire the best people and pay them. Period. On that last point, let me remind the Caisse of their duty to be an employer that provides equal opportunity for all and that the public sector should reflect Quebec’s diversity. The Caisse needs to improve its diversity at all levels and hire more visible minorities and people with disabilities.

In fact, I challenge all Canadian public pension funds, as well as Canadian and Quebec Crown corporations, to start taking diversity more to heart in their hiring practices doing a lot more to hire visible minorities and especially people with disabilities.

Why am I so adamant about this? Because I'm disgusted with what is going on in Quebec's financial institutions where hiring practices and senior positions are not reflecting the diversity of our population. I can't say I'm all that impressed with what is going on in the rest of Canada and I will not keep my mouth shut. If I offend anyone with my comments, tough luck.

Michael Sabia is a workaholic. I know because he has emailed me on rare occasions late at night or during holidays. He has good people at the Caisse helping him out but he needs to hire more expertise, especially in infrastructure. He can also do the right thing and hire the world's best pension analyst, publisher of the best blog on pensions and markets, a resident of 'la belle province', someone with experience in public, private and hedge fund investments, someone who speaks French, English and Greek fluently and is ready to work twice as hard as anyone to deliver solid results.

On that note, below, Thanos Papasavvas, head of currency management at Investec Asset Management Ltd., discusses the outlook for Greece's economy, the European sovereign-debt crisis and expectations for the euro. He speaks with Linzie Janis and Owen Thomas on Bloomberg Television's "Countdown."

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