PQ Questions Caisse's Quebec Focus?

We're in the midst of an election campaign in Quebec and CTV Montreal reports, PQ wants Caisse de Depot to concentrate on Quebec:

Pauline Marois wants the Caisse de Depot to concentrate on Quebec.

The Parti Quebecois leader said Thursday that the province's investment agency, the Caisse de Depot et Placement du Quebec, has lost focus during the Charest era and needs to return to its original goal: promoting Quebec.

Marois said a PQ government would create of a $10 billion fund designed to protect Quebec companies from foreign takeovers.

"It's fundamental. It's what we need to promote our companies," said Marois.

However the PQ leader said that the fund would not require any additional spending by the government.

"Essentially it's money that's already being used by the Caisse de Depot," said Marois. "We would order the reserve of $10 billion to protect our head offices, our rising stars, and development in growing sectors."

She criticized the direction the Caisse has taken during the past decade, saying a focus on creating wealth above all led to risky decisions, including being over-exposed to asset-backed commercial papers in the U.S.

That led to a $40 billion loss in 2008 when the U.S. housing market collapsed -- one quarter of the agency's total value.

That loss was hardly unique. In that same year the Canada Pension Plan lost more than 14 per cent of its value, while other provincial investment arms saw similar results.

In the years since the Caisse has recovered and now has $159 billion in assets.

Marois also said that she would not be likely to replace Michael Sabia, who has led the Caisse since March 2009.

"I don't want to judge Michael Sabia. We have seen that he is very sensitive to investing in Quebec," said Marois.

"I will make sure that the head of the Caisse understands our vision."

The PQ is also proposing tighter restrictions on companies saying that during the past nine years the number of companies moving their head offices out of Quebec has accelerated.

"We would increase the responsibilities of administrators," said Marois. "They would have to take into account not only shareholders, but employees, clients and suppliers."

Nicolas Marceau, the MNA and candidate for Rousseau, said the goal is also to protect companies from falling into foreign hands.

"We also want to make sure that when a company refuses a hostile takeover, it would be protected," said Marceau, pointing out that similar legislation exists in several U.S. states.

Before I proceed to comment, full disclosure. One of my family members is a well known diplomat for the Quebec government. I never voted PQ and never plan on it for the simple reason that their separatist agenda is central to their platform.

Right now, not impressed with any political leader in this province or country. Moreover, in my opinion, René Levesque and Lucien Bouchard were two of the best political leaders Quebec has ever known but they were both eaten alive by their party (brutal infighting).

Alright, now that I got that out of the way, let me proceed to comment on why Ms. Marois should keep the Caisse out of Quebec politics. First and foremost, it's a matter of good governance. Anywhere you look in the world where political leaders have undue influence in public pensions, these funds are grossly underperforming their peers.

There is a simple reason why: politicians' best interests are not aligned with those of pension beneficiaries. Politicians should keep their nose out of the investment decisions of public plans. Period. Nominate a qualified investment board to oversee the funds and make sure you have a few truly independent financial academics on that board.

Second, the Caisse is already doing a lot to promote Quebec businesses. It's part of its mandate and it's something that Michael Sabia has repeatedly stated he's committed to. Is there more that can be done? Sure, I have my own views and expressed them in Quebec's absolute return flop last year. At the time, was impressed with Francois Legault's rhetoric, much less so today.

My criticism of the Caisse is the same criticism I level at all Canadian public funds, namely, they're not doing enough to promote home grown investment management talent, whether it's in hedge funds, private equity or traditional investments.

In particular, I would like to see all public pension funds set aside 1% or 2% of their portfolio to seeding new investment managers in Canada. Admittedly, this could be tricky and fraught with politics, but if it's done properly, it will help talented and entrepreneurial investment managers get off the ground and more importantly, it will create much needed jobs.

My focus is primarily on seeding because the multiplier effect for job creation is much larger when seeding new funds. I've covered some of the talented emerging and established hedge funds in Quebec in a previous comment on Quebec's absolute return fund and followed-up on the shortcomings of the SARA fund, a fund established to promote established and emerging alpha managers.

Since writings these comments, my views and enthusiasm for Quebec's alpha funds have tempered considerably. Seen some real dirty 'Quebec' politics going on and I'm not sure most of these managers even deserve an allocation. The truth is a lot of managers have a grossly distorted view of their capabilities and what it takes to actually run a successful hedge fund.

Worse still, some of Quebec's best alpha talent are working at banks and they're getting royally screwed by internal politics at these banks. Most of these alpha managers would be better off working at the Caisse or PSP investments if they got the right terms.

Pauline Marois and every other Quebec politician should steer clear of the Caisse. The Caisse cannot defend all Quebec companies from the forces of globalization, nor should it. It should simply focus on delivering high risk-adjusted returns, which isn't easy in this environment.

Finally, one thing I will tell all Quebec's politicians, you need to do a hell of lot more to promote and incorporate ethnic and visible minorities into Quebec's public institutions, as well as Anglos. The record of diversity in this province is scandalous, bordering on institutional racism.

Anyone who claims otherwise is ignoring the statistics that paint an ugly picture. There are many people who grew up in Quebec, speak perfect French, love this province but were forced to leave because of lack of jobs and institutional racism in the public and private sector.

This 'diversity drain' has to stop but nothing is being done because our politicians and corporate leaders fail to even acknowledge the problem.

Below, the PQ leader makes a case for sovereignty in the economic realm. Every time I hear her talk, I cringe, and it has nothing to do with her poor English. She really doesn't understand what is in the best interests of all Quebecers.