More Fallout at the Caisse's Otéra Capital?

Hugo Joncas of TVA Nouvelles wrote an article discussing why a director of the Caisse's real estate lending subsidiary, Otéra Capital, was fired back in May. The article is in French but I used Google translate and some editing so my readers can get the gist of it:
The Caisse de dépôt dismissed a director of its subsidiary Otéra Capital, Yvon Tessier, in the wake of its investigation into ethical issues in May.

The director had to leave the board of directors of Otéra, where he had sat for eight years.

At a press conference, the Caisse confirmed the departure of three executives. Our Investigation Office had already identified them in February and March in a series of reports on mafia ties and ethical sprains of executives of Otéra, specialized in real estate financing.

The Caisse also mentioned that a fourth person "related to Otéra" no longer "holds functions", following the independent investigation of Osler, Hoskin & Harcourt, triggered at the beginning of our revelations.

According to the law firm, this person "breached his obligation of confidentiality concerning a file, without consequence for the file in question".

The Caisse did not want to confirm that this fourth "related person" at Otéra that was ousted is Yvon Tessier. However, it confirmed his departure, which was linked, according to the financial institution, to the renewal of the Board, announced to raise its standards of governance and ethics.

"I have nothing more to add," says Otéra's Vice President of Legal Affairs, Mélanie Charbonneau.

Yvon Tessier refused the interview requests from our Investigation Office.

He also left the Fonds FTQ

"Please be advised that I deny and refute any allegations of breach of confidentiality," he said in an email last spring.

Until early June, Yvon Tessier also sat on the board of directors and the audit committee of the Fonds de solidarité FTQ, but resigned from office after questions from our Inquiry Office.

The Fund says it ignores why the Caisse separated from Yvon Tessier.

"On our side, we have nothing to reproach him," says spokesman Patrick McQuilken.

Yvon Tessier joined Otéra's board of directors on March 1, 2011. He was replacing his own spouse, Ghislaine Laberge, who was still in her seat the day before.

Director at a client

For two years she was a director at both Otéra and one of the lender's largest clients: Cominar Real Estate Investment Trust.

Otéra granted it nine loans totaling $ 623 million from 2011 to 2018.

According to the Caisse's subsidiary, these loans did not require authorization from the board, "since they did not meet the criteria of value for doing so".

Ghislaine Laberge left the Board of Trustees of Cominar last year.

In an email, Yvon Tessier denies disclosing Otéra's sensitive information.

"I have never had any communications or discussions on Otéra issues with anyone, including Cominar or the Fonds de solidarité FTQ. "

The former boss of Otéra is still at the service of the Church

The former CEO of Otéra Capital Alfonso Graceffa is still a member of the Board of the Compagnie mutuelle d'assurance en Église (CMAÉ), the company that insures the property of parishes and dioceses in southern Quebec.

Since 2017, the businessman sits on the board of the CMAÉ. After the announcement of his dismissal by the Caisse de depot et placement du Québec, the company asked its ethics committee to look into the future of Alfonso Graceffa.

We take it seriously

"Our VP, who is a lawyer by profession, is talking to the other party's lawyer," says Gabriel Groulx, Mutual's Board Chair. We take this case very seriously. "

He thinks he can announce "developments" in "a few weeks".

Our Investigation Office revealed that Alfonso Graceffa's companies had secured loans totaling $ 9.2 million from a subsidiary of Otéra, of which he was CEO.

After his permanent removal in late May, the former leader filed a $ 7.35 million lawsuit against the Caisse for "wrongful dismissal". He believes he was "sacrificed" to calm the "media frenzy".

Lawsuit in 2018

Before our revelations, the businessman had already gotten into trouble with the CMAÉ.

The Company even filed a lawsuit in February 2018 for the removal of Alfonso Graceffa and another director, Ferdinand Alfieri, alleging that they had a conflict of interest.

While sitting on the board of the CMAÉ, Graceffa and Alfieri advised its biggest client, the Archdiocese of Montreal, according to court documents.

The Archdiocese had also put all its weight for the CMAÉ to keep Alfonso Graceffa in office and had won his case.
Someone sent me this article earlier today, and I replied "yeah, it was a real sh*t show at Otéra Capital”.

These days, the Caisse's CEO Michael Sabia must be feeling a lot like this Michael when it comes to Otéra Capital:

In all seriousness, there was obviously a serious governance lapse when it came to Otéra Capital and this scandal broke out in February when allegations of mafia ties with one employee at the organization were made public, setting off a bomb at the Caisse.

It was only a matter of time before heads had to roll and I'm not surprised Alfonso Graceffa, the former CEO of Otéra Capital was dismissed following an internal investigation.

Mr. Graceffa is suing the Caisse for $7.35 million claiming he was wrongfully dismissed but I honestly don't think he stands a chance. His strategy might be to go public, pressuring the Caisse to settle out of court for a couple of million dollars.

I have to be honest, however, and state the obvious. The optics don't look good for Alfonso Graceffa but they certainly don't look good for the Caisse either. It's easy to point the finger at him and make him out to be the scapegoat but others dropped the ball too, including internal auditors who should be reporting straight to the board of directors of Otéra Capital.

That brings me to Yvon Tessier and his spouse, Ghislaine Laberge. For two years she was a director at both Otéra and one of its largest clients, Cominar Real Estate Investment Trust.

Otéra granted it nine loans totaling $623 million from 2011 to 2018. And according to the Caisse's subsidiary, these loans did not require authorization from the board, "since they did not meet the criteria of value for doing so".

Excusez moi? No board approval required for $623 million in real estate loans? No wonder it was a free-for-all at Otéra Capital, not that it would have made much of a difference with conflicted board members like Yvon Tessier.

I've worked in the pension industry long enough to know one thing, there are some shady characters in all departments, especially real estate teams (they're few of them but I've met some real sleazebags that work in real estate and I always wanted to take a shower after speaking to them).

There's an old Greek expression: "He who has honey on his lips can't help but lick them." There are a few people who used to work at Otéra Capital who were licking their lips and gorging on the honey.

I have a very simple philosophy when it comes to pensions and money: don't trust anyone and set up procedures to make fraud at any level, especially the highest level, absolutely impossible.

Did I ever tell you the time I was working at the Caisse and Mario Therrien asked me to go meet with John Xanthoudakis of Norshield Financial, a fund of hedge funds based in Montreal which was managing over $2 billion at the time (2002) before collapsing after being exposed as a fraud.

I walked in to some plush offices, some scantily dressed assistant brings me in a big board room and tells me to wait. In walked Johnny "X" as he was affectionately called, sporting a tan, manicured hands, bleached white teeth and wearing a $10,000 Brioni suit.

He puts up a slide showing Norshield's returns relative to risk, a perfect 45 degree line and starts spewing nonsense my way. "We have the best risk-adjusted returns in the industry, nobody comes close to our Sharpe ratio."

Little did he know, he fell on the wrong guy. "Yeah, they look too good to be true. We invest in the best hedge funds in the world and I've never seen returns like that”, I said.

I then asked him a simple question: "Which are the top five hedge funds you're invested in?".

Astonishingly, he couldn't answer my question, he wasn't able to name one hedge fund. I was managing a portfolio of 30 hedge funds at the time and could still tell you their names, their managers, and even their administrators (ok, maybe not their administrators).

Johnny X then told me to go see his Chief Risk Officer which carries a computer file. We head down the hall to some office but nobody was there, his CRO was playing golf in Florida.

I'm not exaggerating, you couldn't make this stuff up, it was like a bad movie. I had enough and 15 minutes into our meeting, I said I've seen enough and was heading back to the Caisse.

I'll never forget what happened next, he looked at me and flat out asked: "Leo, is there some way we can facilitate an investment from the Caisse?"

I looked at him and replied: "Sure, you just have to run it by by Investment Committee."

Unbelievably, he had managed to bribe a few investment officers at the city of Laval, Sherbrooke and some high profile brokers at RBC who invested with him. How else did this clown get $2 billion assets under management at the height of his swindle?

I also remember my father telling me his church had invested in Norshield and got out after making twice as much as they invested after five years.

I also remember a wealthy family friend who had invested a sizable sum with Norshield at the time and I called her imploring her to get her money out. At the time, they were giving her excuses so I told her to call Norshield and tell Johnny X she is going through a messy divorce and the CRA wants to look into all her investments. She got a cheque 2 days later for the full amount.

She was lucky, as were the parishioners at my dad's church. A lot of small time investors got burned badly, losing their life savings, but the big mafiosos all got their money back (no kidding).

Anyway, where am I going with this? Oh yes, trust nobody, even the people who you think are ethical beyond reproach can cave into temptation. Remember the old Greek expression: "He who has honey on his lips can't help but lick them."

As far as Otéra Capital, there's a new CEO, Rana Ghorayeb, who was named back in May. There's also a new board of directors which includes Marc Cormier, Executive Vice President and Head of Fixed Income and Active Overlay Strategies at the Caisse.

La Presse published a great profile on Ms. Ghorayeb a few months ago. I don't know her personally but a friend of mine who worked with her told me she is very impressive, smart, and extremely ethical. She has a very interesting background, emigrated to Canada from Lebanon with her family after the war, and worked in for TIAA-CREF in New York and JP Morgan Asset Management in London overseeing real estate investments prior to joining the Caisse's infrastructure team.

The Caisse also recently named Nathalie Palladitcheff as the President and CEO of Ivanhoé Cambridge, its massive global real estate subsidiary.

Both these women are highly, highly competent and extremely ethical. It's actually a good thing that the Caisse placed two women at the top job for their real estate subsidiaries. It helps balance out some of the testosterone flowing in there.

One thing, however, you will notice that unlike the Caisse, BCI, OTPP and OMERS, CPPIB, PSP Investments, AIMCo and HOOPP don't have separate real estate subsidiaries or any subsidiaries. I personally believe it's a lot easier this way to control things and you don't need a separate board for each subsidiary and there's less chance of fraud.

I might be wrong on this but I never understood why real estate needed a separate subsidiary at any pension and if so, let them publish an annual report disclosing salaries and compensation, just like they do for the pension funds which they work for.

Anyway, like I said, there are some real sleazebags in real estate, but there are sleazebags in all asset classes, you need to weed them out.

And Michael Sabia? He just wants to focus on real assets and his last act at the Caisse. One thing is for sure, he doesn't want to be dragged back into another scandal at Otéra Capital.