Michael Sabia Leaving The Caisse

The Canadian Press reports that Michael Sabia is leaving Caisse to head University of Toronto's Munk School:

The chief executive of the Caisse de depot et placement du Quebec is stepping down from the pension fund manager to become head of the Munk School of Global Affairs and Public Policy at the University of Toronto.

The Quebec fund manager says Michael Sabia, 66, is leaving at the beginning of February, a little more than a year earlier than expected.

"I know that I am leaving the Caisse and its people in a strong position to seize the many opportunities that lie ahead for them as I move on to my next challenge," Sabia said in a statement on Tuesday.

Sabia, who was not available for interviews, noted that leading the unique Quebec institution has been "the greatest privilege" of his career.

He has served as president and chief executive at the Caisse since March 2009. Before joining the investment fund, he was chief executive of BCE Inc.

In February 2017, his mandate was renewed until March 31, 2021, to allow Sabia to oversee the completion of the Montreal electric railway project.

Caisse chairman Robert Tessier said it has retained the services of an international firm to search for Sabia's replacement and planned to complete the process at the beginning of 2020, with the appointment of a successor approved by the government.

Potential candidates have probably already been identified, said Michel Nadeau, a former senior Caisse executive and director general of the Institute on Governance of Private and Public Organizations.

"If Mr. Sabia leaves in February, it's because they already have people in mind," he said in an interview. "They feel that the government would prefer to have another person."

Quebec Premier Francois Legault praised Sabia's work, calling him an "excellent manager," "hard working" and a "brilliant man."

Finance Minister Eric Girard denied that the government wanted to place its own candidate at the Caisse.

"My approach was to tell him that I would have liked him to stay longer," he said in Quebec City. "If he had wanted to stay longer, he could have stayed longer."

Girard, who said the Caisse could be headed by a woman, felt Sabia's replacement would have to ensure its portfolios are resilient through a period that will eventually include bear markets.

Sabia's appointment was criticized a decade ago because he was not from Quebec.

But he made a name for the Caisse with a focus on reducing the volatility of returns, said governance expert and Concordia University professor Michel Magnan.

"He was hired to restore confidence in the institution. On that, I think we cannot argue."

Sabia was appointed to head the Caisse after it was shaken by the financial crisis, which resulted in $40 billion of losses the previous year.

Under his guidance, the Caisse said it has produced "solid and sustainable returns" of 9.9 per cent over 10 years, while the size of its net assets has almost tripled to $326.7 billion at June 30.

Over the last decade, the institution has diversified, focusing particularly on sectors such as infrastructure and private equity, while continuing to invest in real estate and adjusting its strategy.

"He confounded skeptics, me being the first," said Nadeau, who believes Sabia's mandate can be viewed in two periods.

Nadeau said Sabia spent the first years reducing the portfolio's risk and then relaunching an international expansion with 10 offices abroad. He also put more emphasis on investments in Quebec.

Sabia's total compensation last year was $3.87 million, up 11.5 per cent from 2017. His salary has remained steady at $500,000. He will not receive severance.

The Montreal Gazette reports that Premier Legault pays tribute to departing Caisse boss Michael Sabia:

The province’s political class was quick to praise Michael Sabia on Tuesday, saying his “remarkable work” over the last 11 years helped bring the Caisse de dépôt et placement du Québec to new heights.

Sabia, 66, announced Tuesday he will be stepping away as the Caisse’s CEO in early February. He will be joining the University of Toronto as the new director of its Munk School of Global Affairs and Public Policy.

In a statement released from his office, Premier François Legault said Sabia led the Caisse through major global investments and a steady increase of its assets since 2009.

“I salute Mr. Sabia’s exceptional career at the head of the Caisse,” Legault said. “He has made the Caisse an even more important player in our economy for the benefit of all Quebecers.”

Legault said he spoke with Sabia after the announcement to thank him for his work.

Economy Minister Pierre Fitzgibbon praised Sabia for his dedication to his role and contribution to Quebec’s economic development, noting he worked with him both as a minister and as a Caisse board member himself.

“His rigorous management as CEO has brought the Caisse to another level, thanks to more than competitive returns year after year,” Fitzgibbon said in a statement.

Finance minister Eric Girard, for his part, said Sabia’s “professionalism” benefited the entire Quebec economy.

“During his tenure, Mr. Sabia improved the Caisse’s management processes,” Girard said in a statement, “which enabled him to outperform his benchmarks while creating more resilient portfolios.”

When Sabia became the Caisse’s CEO in 2009, it was considered a surprise. Being born in Ontario, he was labelled an outsider, despite moving to Quebec in 1993.

The Caisse was also coming off a year where it lost $39.8 billion.

But Sabia said then his focus was on the work ahead. His goal was to stabilize and fortify the Caisse, he told reporters, beginning with a reassessment of its risk-management, investment and communication strategies.

“The past isn’t particularly interesting to me,” he said during his first public appearance as CEO. “What interests me is the future and the steps we’ll take to strengthen the Caisse.”

And Barbara Shecter and Victor Ferreira of the National Post report on Sabia's dual legacy at the Caisse: He kept his stakeholders — and his political masters — happy:

In a major changing of the guard in the Canadian pension management world, Michael Sabia has announced he will leave the Caisse de dépôt et placement du Québec next February, a year ahead of schedule.

Sabia, 66, has been at the helm of Canada’s second-largest pension for 11 years, following a career that included serving as a senior executive in the telecommunications and transportation industries.

As the first Anglophone to run the Caisse — which has a rare dual mandate to achieve optimal long-term investment returns and to contribute to Quebec’s economic development — his hiring in the aftermath of the 2008 financial crisis was controversial.

At the time, the Caisse was dealing with one of its costliest missteps: heavy investment in asset-backed commercial paper, a form of short-term debt that had exposure to the U.S. subprime credit market, that contributed to a loss of a quarter of its assets in 2008 alone.

“He has been able to deliver good returns and to please the various funds and their members,” Claude Lamoureux, former head of the Ontario Teachers’ Pension Plan Board, told the Financial Post. “Also, what is more important, he (kept) his political masters happy.”

When Sabia took over as CEO of the Caisse in 2009, 64 per cent of its assets were invested in Canada. But by the end of 2018, the balance had shifted, and the same proportion was invested globally.

At the same time, under Sabia’s guidance, the pension manager has maintained its status as a champion of Quebec industry, including retaining its longstanding investments in troubled engineering firms SNC Lavalin and Bombardier Inc.

Lamoureux said Sabia’s “signature” style — solid investments that will pay dividends for both the pension and the province — can be seen in the Caisse’s recent investment in a $6.3 billion light-rail system planned for Montreal, scheduled to open by the end of 2021.

Expanding the portfolio of global investments has been a trend for many Canadian pension funds, but Sabia deserves “a massive amount of credit” for the Caisse’s transformation and performance, said Mark Wiseman, former CEO of the Canada Pension Plan Investment Board.

“Michael has done an incredible job leading la Caisse,” Wiseman told the Post, praising Sabia’s “unrelenting” work ethic and attention to detail.

“Under his tenure, CDPQ has become one of the most sophisticated, risk-aware and well-managed institutional investors in the world,” Wiseman said.

In 2017, Sabia’s term as CEO of the Caisse was renewed through March of 2021. However, he will leave just over a year early to take a job leading the Munk School of Global Affairs and Public Policy at the University of Toronto, a post he was offered following a global search process.

“This appointment will allow me to continue working on issues that I think are particularly important in the current state of world affairs,” Sabia said in a statement, noting that he will spend time in both Montreal and Toronto after he starts the new job in February.

“I know that I am leaving CDPQ and its people in a strong position to seize the many opportunities that lie ahead for them as I move on to my next challenge,” he said.

The Caisse has retained an international recruitment firm and plans to name a successor by the beginning of next year.

Robert Tessier, chair of the Quebec pension’s board, said Sabia did an “outstanding” job.

“His leadership has been founded on a clear vision in a complex and changing world,” Tessier said, adding that the Caisse has been built into a global financial institution with a diversified portfolio that benefits both depositors and the Québec economy.

“Courageously stepping up to the challenge of leading CDPQ in 2009 following the financial crisis, Michael and his team step by step have rebuilt the organization and repositioned it with new ideas.”

Sabia’s smooth run was far from a foregone conclusion when he took the job in 2009, following the departure of Richard Guay only four months into his appointment.

Sabia’s background, which included time as a federal government bureaucrat who worked on the tax overhaul that would lead to the creation of GST, made him a natural target for the Parti Québécois, said Karl Moore, a professor at McGill University’s Desautels Faculty of Management.

“It was just something where as the PQ, you go, here’s a guy who’s not from Quebec, whose mother-tongue is not French and in fact worked for the federal government…. They’re not natural allies,” Moore said of Sabia, who also worked as Canadian National Railway’s chief financial officer and chief executive of BCE Inc.

While tilting the portfolio toward a global focus, Sabia stayed true to the Caisse’s other central mandate of investing in Quebec, Moore said, pointing to large investments in Quebec’s tech sector, notably in Element AI and Lightspeed POS Inc.

“Part of it is it’s Quebec-based,” Moore said, “but it’s also a good investment. I don’t think they blindly invested in Quebec. They did it with a lot of wisdom and insight.”

Sabia navigated these challenges while proving to the government that he was worth keeping in the role, Moore said, suggesting that one slip anywhere along the way would have been all the PQ needed to dismiss him.

Sabia’s exit marks the third recently announced departure of a long-time Canadian pension CEO.

Ron Mock, chief executive of the Ontario Teachers Pension Plan, will retire and hand the reins to Teachers’ Jo Taylor on Jan. 1.

Jim Keohane, CEO of the Healthcare of Ontario Pension Plan, announced this year that he would be retiring in March of 2020.

Indeed, it's the end of an era, Michael Sabia joins Ron Mock and Jim Keohane who announced they are stepping down from their CEO position.

My sources tell me there is a big upcoming board meeting at HOOPP where they will pick the next CEO. Jeff Wendling, HOOPP's CIO, is a major contender but there are also external candidates vying for this top job.

I've already covered how Jo Taylor will succeed Ron Mock at Teachers' mostly to build that organization's international brand.

And now we learn that Michael Sabia is departing the Caisse early next year. Truth be told, I knew he was going to announce he is stepping down a couple of months ago but I didn't know exactly when or where he is heading.

Above, you all read statements on Sabia from Quebec Premier François Legault, Economy Minister Pierre Fitzgibbon, and Finance Minister Eric Girard. You also read what Michel Nadeau, Claude Lamoureux, Mark Wiseman and Robert Tessier think of Michael Sabia.

Now it's time you read my thoughts on Michael Sabia -- the good, the bad and ugly -- the "unsanitized, uncorporatized" truth which you won't read anywhere else (which is why most of you read this blog).

Before Sabia gets an aneurysm reading this, everyone should take a deep breath, it's not going to be an attack on the man but it won't be the fluff and grandiose praise you're mostly reading in the press either.

Let me begin by stating baring a financial crisis over the next two months, Michael Sabia is the luckiest Caisse CEO ever. Over the last 11 years at the helm of this massive pension fund, he has never dealt with a major financial crisis, not one!

His mandate literally began at the bottom of the market in March 2009 and he has enjoyed the longest bull market in history.

You certainly can't say that about his predecessors all of whom had to navigate through one or more major crises.

Now, Sabia keeps telling us he has "made the Caisse a lot more resilient" and to be sure, he has but we won't actually know just how much more resilient until the next big crisis strikes. For me, talk is cheap, let's see your strategy in action.

I begin by stating the obvious because let's face it, luck plays a huge factor in the role of any pension fund CEO, and Michael Sabia should count his blessings he never had to navigate through any financial crisis. In my opinion, only then can you gauge the character and strength of any leader.

Having said this, Sabia's tenure at the Caisse was no picnic. From the get-go, the Parti Québécois (PQ) had a target on him because he was an anglophone from Ontario.

In 2009, Sabia got visibly angry answering questions from my former PSP colleague turned PQ MNA, Jean-Martin Aussant. I really thought the man was having second thoughts about staying on at the Caisse after dealing with all the nonsense these separatists were throwing his way (I like Jean-Martin but that sure wasn't one of his finest moments in politics).

Anyway, Sabia moved passed all the politics and focused on his job. He worked like a donkey at the Caisse. In fact, his work ethic is well-known, and his critics inside the Caisse told me they found him insufferable at times.

Sabia isn't known to be a touchy-feely kind of guy. Don't get me wrong, he's very nice when you meet him but working alongside him or reporting to him, you might be pushed to blow your brains out. He's super demanding to the point of absurdity at times but to be fair, the man only knows two speeds: fast and super fast. He's extremely demanding on himself and would often forget people have a life outside the Caisse.

He rarely if ever came down from the 11th floor at the Caisse's offices in Montreal to intermingle with regular employees. I think he tried but he has that Jesuit mentality where he feels it's easier to mingle with his counterparts and senior executives or spend time with the Desmarais family at their large estate in Sagard, Quebec.

In short, Michael Sabia is an elitist but he's definitely not full of himself and has zero tolerance for investment cowboys. He cleaned up house at the Caisse following the $40 billion train wreck and placed the right people in charge (people like Roland Lescure, the former CIO and Macky Tall, the head of the REM project and now also head of Liquid Markets).

I've only met Sabia once at CBC headquarters here in Montreal. We were both giving an interview whether more regulations are needed for pensions and I saw him at the security checkpoint and introduced myself. He was very nice, told me he reads my blog and then some attaché of his got all flustered and ushered him off (that guy was very strange and downright rude!).

Another time, I was waiting for my father at the Montreal airport and saw Sabia coming out to go to a waiting car but I didn't stop him as my father is much more important to me than Michael Sabia.

At the beginning of his tenure, I remember him emailing me at 11:30 p.m. but he never took the time to ever meet me. Still, I was told that my blog comments are circulated daily at the Caisse, at least to senior managers so I guess he sees some value in what I produce.

Last night, I sent him an email to meet him today to go over his tenure at the Caisse but he didn't respond. As stated in the article above, he's not doing any interviews which is a shame.

Now, as I stated above, Michael Sabia did some excellent HR moves like hiring Roland Lescure who was a great CIO and putting Macky Tall in charge of the $6 billion Réseau express métropolitain (REM), "Michael Sabia's baby" and the greenfield project which will mark his legacy at the Caisse for decades to come.

He also did some bonhehead HR moves (or allowed them to happen under his watch). Some really good people like Jean Michel, Patrick de Roy, Simon Lamy, Brian Romanchuk and others left the organization under his watch and that should have never happened. I also suspect Roland Lescure was fed up reporting to him.

What else bugged me? Even though he increased investments in Quebec, he didn't promote new and existing public market funds in Quebec. And even though the Caisse's Quebec investments are profitable, I still question whether the Caisse's dual mandate is in the best long-term interest of Quebecers.

Anyway, early on, it was clear Sabia didn't believe much in public markets or hedge funds, his focus was squarely on real assets like infrastructure and real estate and he had a vision which came to fruition with the REM project.

No other pension fund in Canada or the world has attempted to do a greenfield infrastructure project of this size, scope and complexity, and Sabia should be given credit for being a pioneer in this regard.

Macky Tall oversees the CDPQ Infra team and he hired the right people to work on this project, like Jean-Marc Arbaud, Managing Director of CDPQ Infra (see its governance here). If successful, the Caisse is looking to export this model elsewhere like New Zealand and the United States.

In real estate, Michael Sabia had the insight to place Nathalie Palladitchef as the new CEO of Ivanhoé Cambridge, the Caisse's massive real estate subsidiary and Rana Ghorayeb at the new CEO of Otéra Capital, the real estate lending subsidiary which was mired in a scandal that precipitated a shakeup of its upper ranks.

The Otéra Capital scandal was probably the low point of Sabia's tenure but he didn't hide from it, he owned it and took responsibility for the weak governance that led to it (he was responsible and he really screwed up not paying closer attention to what was going on at Otéra).

There are two other areas where Michael Sabia excelled relative to his peers. Gender diversity at all levels of the Caisse, especially the upper ranks, and addressing the risks and opportunities of climate change.

Sabia has hired more women at the Caisse's senior ranks than all his predecessors combined and even puts his peers to shame. If you look at the Caisse's executive team, you will see five women, and one of them, Anita George, has huge responsibilities investing in public and private markets in growth markets like India.

Another lady, Kim Thomassin, heads the Legal Affairs, Corporate Secretariat and Compliance and Stewardship Investing teams. Ms. Thomassin was one of the authors of the final report on sustainable finance and has done a great job raising the Caisse's profile in that regard. 

Michael Sabia takes climate risks and opportunities very seriously. He has firm views on doing sustainable finance right.

In 2017, the Caisse announced it was targeting a 25% cut in its carbon footprint by 2025 and this year it announced it is well ahead of schedule.  Not surprisingly, the Caisse figures among the most responsible investors in the world.

Lastly and most importantly, Michael Sabia will be remembered as someone who is never content with the status quo and truly believes we need need a new paradigm for durable, sustainable and inclusive growth, one which builds on the competitive strengths of long-term institutional investors.

Let me end by stating Michael Sabia has done remarkable things at the Caisse over the last 11 years. Was he perfect? Hell no, he will be honest about that, but he did do extraordinary things that helped solidify the Caisse's foundations across public and private markets, and took climate risks and opportunities and gender diversification very seriously.

For this, he needs to be applauded, an anglophone from Ontario left his indelible mark on the Caisse.

Who will replace him? I honestly don't know. Whoever it is, they have big shoes to fill.

Over the radio this morning, I heard one major contender, National Bank's CEO Louis Vachon said he wasn't interested and wants to focus his attention on that bank.

Robert Tessier, the Caisse's chair of the board, hired an external firm to conduct an "international" search but there are plenty of qualified candidates in Quebec and Canada. Some internal candidates are Macky Tall, Kim Thomassin, Nathalie Palladitchef (she is phenomenal but is leading Ivanhoe).

External candidates are many but I don't think it's time to parachute a new person to lead the Caisse. In fact, it's time to hunker down and prepare for a long, tough slug ahead and I would look more internally which is why I think Macky Tall should be the next CEO.

But if the Caisse goes external, a lady like Marlene Puffer, head of CN Investment Division, would place high on my list. Not only is she brilliant, she will get the culture at the Caisse right and she has qualities Michael Sabia lacks. She's not a native Quebecer but grew up here (from age 5 to 13) and worked here (from 2010-2014) and sat o HOOPP’S board prior to heading up CN Investment Division. She speaks French and knows her investments across public and private markets extremely well. She is more market and risk-oriented than Sabia and that can come in handy when the next crisis hits.

I'm not saying she is interested in the job and haven't checked with her as I publish my opinions but she would definitely place extremely high on my list for a lot of reasons, especially since she is a brilliant woman who really knows her stuff and knows how to get the culture right, leading by example.

Anyway, I'd better stop there before I ramble on too much and say anything I regret.

Good luck with your next challenge Michael, you should have taken the time to get to know me a lot better over the years, you lost out there and I say this with the utmost humility and respect.

Below, Michael Sabia va quitter la Caisse un an plus tôt que prévu. Analyse de son héritage avec Daniel Paillé, administrateur de sociétés et ancien 1er vice-président aux investissements privés de la Caisse de dépôt.

I also embedded a conversation with Michael Sabia, CEO of la Caisse de dépôt et placement du Québec, on the first Investor Forum hosted by the World Bank and the government of Argentina. This was one of his last interviews and gives you a glimpse into what he wants to focus on next.

Lastly, Michael Sabia spoke with Mutsumi Takahashi in the CTV News Montréal studios, on December 20, 2016.

In my opinion, this was one of his best interviews, Sabia at his best. Watch it and you will understand why the REM project will be his lasting legacy for decades to come (also watch clip I embedded).

Update: See my follow-up comment on a big shakeup at the Caisse for more insights on who will replace Michael Sabia. Also, following this comment, Michael Sabia spoke before the Canadian Club discussing "Constructive Capital". You can read his speech in English here and below I embedded the clip (in French) which is well worth watching.