CDPQ Appoints Charles Emond As Its New CEO

Caisse de dépôt et placement du Québec (CDPQ) has appointed Charles Emond as President and Chief Executive Officer:
Following a thorough and rigorous selection process, the Board of Directors of Caisse de dépôt et placement du Québec (CDPQ) has appointed Charles Emond as President and Chief Executive Officer. In accordance with CDPQ’s incorporating act, the appointment was made by CDPQ’s Board of Directors and approved by the Government of Québec today. His appointment takes effect on February 1, 2020.

Charles Emond is currently Executive Vice-President, Québec, Private Equity and Strategic Planning at CDPQ, which he joined in February 2019 after nearly 20 years at Scotia Bank. In addition to leading the Québec investment strategy, he heads the Private Equity (Québec and International) teams, which include direct and indirect investments in nearly 800 companies. He also leads CDPQ’s annual strategic planning process.

When he left Scotia Bank, he was based in Toronto as Global Head, Investment Banking and Capital Markets, and Head of Canadian Corporate Banking. In these roles, he oversaw a team of over 500 professionals in Canada, the United States, Europe, Asia and Latin America. At the same time, he continued to lead Scotia Capital’s Québec activities, serving as the bank’s most senior representative to world-class companies and their various stakeholders. See Charles Emond’s complete biographical notes

“For over 25 years, Charles has acquired extensive international experience and a deep understanding of Québec’s companies and business community. As a leader, he is recognized for his sound judgment, his technical and managerial abilities and for his communications skills. A seasoned negotiator, Charles has demonstrated throughout his career that he can successfully conclude complex and major projects by mobilizing his teams and managing stakeholder relationships with a long-term perspective. This rich combination of experience and skills led to the Board’s decision,” said Robert Tessier, CDPQ’s Chairman of the Board.

“I am very pleased that he has agreed to steer CDPQ through the next stage of its evolution and continue building an organization that is even more solid and resilient,” he added.

Leading CDPQ is a challenge that I am incredibly proud and greatly humbled to accept. I also accept it with confidence, because I know I can count on the expertise and immense talent of our teams. CDPQ is a unique institution with a distinctive signature, as it plays a key role in our economy and exports its investment know-how around the world, to the benefit of Quebecers,” said Charles Emond. “I want to continue building this organization to firmly position it to face the major challenges of our time, including developing our economy for tomorrow and investing sustainably while generating returns for our depositors in the future.”

“On behalf of my colleagues on the Board of Directors and all CDPQ employees, I would like to once again thank Michael Sabia for his vision and profound dedication, which have made CDPQ what it is today,” concluded Mr. Tessier.
The media reaction was swift. Sandrine Rastello and Paula Sambo of Bloomberg report that Quebec pension fund picks veteran bank insider Emond as CEO:
Caisse de Depot et Placement du Quebec picked an insider and banking veteran to lead Canada’s second-largest pension fund manager in an era of low-interest rates and trade tensions.

Charles Emond, 47, who oversees private equity and the fund’s investment strategy in Quebec, will start as chief executive officer and president on Feb. 1, the Montreal-based Caisse said on Wednesday. He is taking over from Michael Sabia, 66, who oversaw a near tripling of assets to more than C$326 billion ($247 billion) and pushed into overseas markets and climate-conscious investing during his 11-year tenure.

“I want to continue building this organization to firmly position it to face the major challenges of our time, including developing our economy for tomorrow and investing sustainably while generating returns for our depositors in the future,” Emond said in a statement.

Emond, who worked at Bank of Nova Scotia for almost two decades before joining the Caisse last year, represents the latest shift in the changing of the guard at Canadian pension funds. Blake Hutcheson will take over as the new head of Ontario Municipal Employment Retirement System in June, following the appointment of Jo Taylor as the head of Ontario Teachers’ Pension Plan, who succeeded Ron Mock who retired Jan. 1.

“Over the course of his more than 18 years at Scotiabank, he proved to be a strong banker, leader and relationship manager with a clear focus on clients and results,” Brian Porter, CEO of Scotiabank, said in a statement.

Tasked with a rare twin mandate of generating optimal returns while contributing to Quebec’s economic development, the new CEO will need to navigate the geopolitical risks that have roiled markets --from U.S. tensions with China and Iran to the coronavirus--as well as the intricacies of provincial politics. His appointment was vetted by the government.

Scotiabank Background

Lower-for-longer interest rates have pushed pension funds and asset managers to cast their nets far and wide in search for returns. Emond inherits an institution that has 64% of its funds invested in global markets, against 36% when Sabia took over in 2009.

That diversification, combined with investments in low volatility assets such as private equity and real estate, helped drive annual returns of 9.9% over the past 10 years.

Emond, who led Scotiabank’s 2018 acquisition of Jarislowsky Fraser Ltd., joined the Caisse about a year ago and was given increased responsibilities in November. While independent, he will need to define a working relationship with the nationalist government of Premier Francois Legault, who has vowed to increase wealth in the province of 8.5 million and preserve head offices.

In a May interview with La Presse, Emond said the institution’s dual mandate was “an interesting challenge.” Protecting head offices doesn’t just happen defensively at the time of a transaction, but also offensively when helping local companies expand or modernize, he said.

Unique Role

As a shareholder in a slew of Quebec-based companies, La Caisse can be a key player in the economic landscape. Last year it publicly lost patience with struggling engineering company SNC-Lavalin Group Inc. The fund’s 30% stake in ailing Bombardier Inc.’s train unit could prove decisive for the company as it considers asset sales. Emond has a seat on the unit’s board.

The Caisse plays a unique role in Quebec, where many feel ownership of the institution that manages their savings. It was set up by the government in 1965, during a period of deep changes known as “the quiet revolution” that saw the province take steps to gain greater autonomy on everything from education to natural resources.

In a November speech, Sabia shared that people regularly walk up to him at the grocery store or at restaurants to thank him. But the Caisse is under close scrutiny by politicians and local media, including on its recent efforts to design, build and operate a public transit system for the first time -- a light rail in Montreal.

Sabia is leaving to head up the Munk School of Global Affairs and Public Policy at the University of Toronto.

“In Quebec, the Caisse president is almost a public persona,” said Michel Magnan, a Concordia University professor in Montreal who specializes in governance. “There’s a political dimension to the job.”
There most certainly is a political dimension to the top job at the Caisse and I'm sure Charles Emond is already feeling it.

Alright, so the Caisse has appointed its new CEO and it isn't PSP's former CEO, André Bourbonnais, or Macky Tall, Head of Liquid Markets at CDPQ and President and CEO of CDPQ Infra.

Recall, ten days ago, I wrote a comment on white smoke at the Caisse citing a La Presse article which stated that CDPQ's Board was recommending Macky Tall but there were political obstacles.

I even shared my views:
Anyway, the Caisse's Board of Directors has come to a decision to appoint an experienced internal candidate to succeed Michael Sabia.

I can't say I'm surprised as I think this is a very logical and excellent decision, one I publicly supported. Also, I ran into Michael Sabia over the holidays at an event we were both invited to and he told me even though he didn't know who the Board will choose, he was certain “it would look at all external and internal candidates”.

Read between the lines. There's no doubt in my mind Sabia recommended Macky Tall to Robert Tessier and the Board knew him well so they chose "continuation" rather than risk bringing in someone new from the outside.

Sabia has been carefully grooming Macky for this position and I'm sure his position was transmitted to board members even if he wasn't part of the selection process. He might have also leaked this story to the media to get public opinion on Macky Tall's side, and if that's the case, it seems to be working.
But I also added this:
If Macky Tall is nominated to this position, he will have to polish his PR game, get more comfortable under the limelight and accept a lot of political nonsense which will come his way. Quebec's media are ruthless and always have an angle to play. A guy like Louis Vachon would decapitate journalists who report nonsense and ask irritating questions. Like Sabia, he doesn't put up with nonsense. Macky Tall is more reserved and soft-spoken but he needs to be tough when the media aren't reporting the facts accurately (which happens often when it comes to the Caisse).

Now, as the article above mentions, this isn't a done deal. Quebec's Premier and Minister of Finance will need to sign off on it which they should do. Going against the board of directors to place someone else would be a disastrous decision and make the governance of the Caisse the laughingstock of the international financial community.

But this is Quebec and Quebec is fraught with terrible political decisions so it ain't over until the fat lady (or fat premier) sings.
Well, the fat premier has sung and he didn't sing in favor of Macky Tall, the Board's initial recommendation, but instead went with Charles Emond.

Now, let me be honest, I don't know Charles Emond in the least. What I wrote ten days ago was this:
As far as Charles Emond, the Head of Quebec and Global Private Equity, I'm sure he's highly qualified but in my opinion, he has to be there at least ten years before he can assume the role of President & CEO. Nobody likes when "superstars" who haven't earned their stripes are parachuted in and quickly catapulted to the top job, it's simply not right and sends the wrong signal to employees at the Caisse.
I still stand by my words. I think Emond's nomination to the top job at the Caisse will be perceived with mixed emotions internally. There will no doubt be huge relief from those that were fretting that Premier Legault would choose André Bourbonnais but there will be others who truly believe the top job should have been given to a veteran like Macky Tall who has been with the organization a lot longer than Charles Emond, earned his stripes and spearheaded the most important project the Caisse has ever embarked on.

Anyway, the Government of Québec chose Charles Emond and I can share my thoughts and those of a few others here.

One person who knows the Coalition Avenir Quebec (CAQ) well shared this with me:
Don't know the guy personally but here are my comments:

1) Legault picked him because he is in line with the CAQ position that CDPQ must help Quebec Inc. to remain in Quebec.

2) Recall that Macky Tall is in charge of the REM project. As I recall, the CAQ was not in favor of this project. The REM is perceived by some Caquistes as being a project for the West Island, and not for East of Montreal.

3) Nobody wanted Bourbonnais at CDPQ because of the mess he left behind at PSP.
Another friend of mine told me he doesn't "see Macky Tall staying on at the Caisse" and "wouldn't be surprised if he ends up at PSP where he will have a better chance to lead the organization."

My friend also added: "There will be delays with the REM, the Legault Government is already pressuring the Caisse to extend it to St-Jean sur Richelieu, the governance of the Caisse will be tested and people will feel the pressure."

As far as Charles Emond, my friend told me he doesn't know him personally but when he kept seeing his name pop up in articles, he knew "something was up".

He told me he knew Emond's predecessor running the Caisse's Quebec portfolio, Christian Dubé, who is now a minister with the Legault government and shared this: "Christian Dubé is extremely impressive and I was convinced Legault was going to surprise everyone and name him as the next CEO of the Caisse and that would have been a fantastic choice from every vantage point."

In terms of qualifications, my friend said this about Emond: "He ran investment banking at Scotia Capital so that tells me he's very smart and is a transactions guy but there is a lot more to this job than transactions, there's a huge political and administrative component."

Now, what are my thoughts? I think someone leaked an article to La Presse on how the Board was leaning toward Macky Tall to force the government's hand and it pissed off politicians in Quebec who showed these people who is boss.

And in Quebec, it's the government which is the boss, the entire governance of the Caisse is a bit of a sham show because yes, it's independent from government but at the end of the day, it's the government which appoints the leader of the Caisse and its board of directors in accordance with its political vision.

Having said all this, I must also admit that I watched Charles Emond being interviewed on television last night (see here , here and here and all interviews are in French) and the guy is very impressive. He's relatively young, polished, smart and he comes comes across as humble and communicates extremely well.

In fact, after watching him speak on television, I can honestly say he comes across better than Macky Tall who is more shy and reserved. And don't kid yourself, there's a huge political/ PR dimension to this job which Emond seems very comfortable with and it's a very important aspect of this job.

But it's not just how poised and well he communicated, I actually paid close attention to what he was saying in these interviews:

Emond said that Quebec companies need to "go on offense" and they are prepared to hold "an ongoing dialogue with their portfolio companies to help them compete on the global stage."

He said that "responsible investing is part of the DNA of the organization" and that the REM project is part of this low carbon future and it will transform the city of Montreal in incredible ways.

Émond stated several times that the Caisse needs a better understanding of "disruptive technologies" and the organization needs to embrace AI and improve its operations.

He said there is more competition for prized assets driving up valuations and the Caisse is competing on a global scale.

Emond was asked if he plans on keeping Macky Tall on board and replied graciously by praising "Macky's contributions to the organization" and stating he's an "important member of his team".

[Note: Truth be told, I don't know if Macky Tall will eventually resign or be bumped out but you simply can't replace someone like him very easily and given the REM project isn't completed, Émond needs Tall as well as Jean-Marc Arbaud, Managing Director of CDPQ Infra.]

One of the journalists asked Emond if he plans on exporting the REM project across the world and Émond replied: "Let's first deliver this project on time and on budget" (there will be delays and hiccups along the way).

One person who knows this project intimately well told me: "The way he answered that question on exporting the CDPQ Infra model is diametrically opposed to how Michael Sabia would have answered it, and that is worrisome because it shows he's not committed to exporting this model" (that remains to be seen but I too found his reply surprising).

Emond also said that market winds have been "very favorable" to the Caisse and other large investors during the last ten years but the next decade will be more challenging and they need to be prepared.

On this last point, he noted "the S&P 500 had one of its best years last year (up 31%) and yet profit growth is negligible and slowing," a situation that can't persist.

I agree, in these liquidity-driven/ momentum markets, it's all about multiple expansion and that works fine until the money gods close the faucet.

Longer term, it's very hard predicting anything but generally when making long-term predictions, your starting point matters and with US long bond yields at record lows, it's best to prepare for lower returns ahead (read Ben Carlson's comment on what the 2020s will look like for the markets and Michael Batnick's comment on preparing for lower returns).

Let me wrap up this long comment by referring you to this La Presse article on how Charles Emond is a "modern leader". The article talks about him in a more personal way, interviewing people who know him well and refers to his wife Renée-Claude who took a break from her political career to help raise their two young children.

And this is where I think Emond will be different from Sabia, a well-known workaholic who often worked till very late at night. I think Émond will be demanding but not to the insane level of a Sabia and he certainly understands family comes first.

Lastly, I agree with McGill professor Karl Moore who notes this on Charles Émond: "“He’s an insider at the senior level but with a lot of relevant outside experience…I think we’ll see a continuation of their existing strategies.”

We will see a continuation at the Caisse but I have no doubt Emond will freshen things up by improving things and he too will leave his mark on this venerable organization.

The Michael Sabia era is over, now it's up to Charles Emond to take over and lead this organization during the next decade. I congratulate him on this nomination and wish him and the entire team at the Caisse much success as they navigate these very difficult markets.

Below, RDI Économie's Gérald Fillion interviews Charles Emond, the new CEO at CDPQ. This interview is in French.

I also embedded an older English interview where Emond talked about the growth and the globalization of Québec companies. If Emond gives English interviews to Bloomberg and other media outlets (he definitely should), I will post them here.