CDPQ Injects $4 Billion Into Quebec's Economy

Daniel J. Rowe of CTV News reports the Caisse de depot offers $4 billion for businesses affected by COVID-19 crisis:

The Caisse de depot et placement du Quebec (CDPQ) is stepping up with some cash to help Quebec companies that have been impacted by the COVID-19 crisis.

The CDPQ is offering $4 billion for companies in the province and giving an additional $300,000 as a philanthropic and community donation.

.@LaCDPQ joins the collective effort during the COVID-19 crisis. https://t.co/s6CEcbzE3I pic.twitter.com/wbdcFSsIOT

— CDPQ (@LaCDPQ) March 30, 2020

“This support is intended to complement the various initiatives that other financial institutions, Quebec institutional investors and the governments of Quebec and Canada have announced,” reads a Monday news release from the CDPQ.

Companies must have been profitable before the COVID-19 outbreak and shut down all non-essential business, have a promising growth outlook, and be seeking financing of over $5 million, according to the release.

The company is also freezing all leaders’ salaries for 2020, and postponing compensation for CDPQ leaders to the third quarter.

“The envelope announced today, and the personalized advice that our teams provide to portfolio companies, represent important contributions to Quebec's economy in these difficult but temporary circumstances,” said Caisse president and CEO Charles Emond.

Those companies wanting to request funds can do so at the CPDQ website.

The $300,000 donation will be split between the following organizations:

• Centraide of Greater Montreal's Emergency Fund, dedicated to the most vulnerable people;
• Canadian Red Cross, for its community support services;
• Little Brothers, who especially work with the elderly in need;
• Tel-jeunes, which supports young people and parents with free and confidential professional counselling services;
• Alloprof, which provides valuable educational support services for parents.

Let's go over the press release CDPQ put out on Monday:

With the world facing an unprecedented crisis related to COVID-19, Caisse de dépôt et placement du Québec (CDPQ) joins the collective effort with the announcement of various initiatives.

An envelope dedicated to Québec companies

As an investor, CDPQ is creating a $4-billion envelope to support Québec companies temporarily impacted by COVID-19. This support is intended to complement the various initiatives that other financial institutions, Québec institutional investors and the governments of Québec and Canada have announced.

The funds will be used to address the specific liquidity needs of companies, whether or not in CDPQ’s portfolio, that meet certain criteria, including having been profitable before the COVID-19 crisis, having a promising growth outlook in their sector and seeking financing of over $5 million. Eligible companies will be able to use these investments to weather this turbulent period until the economy recovers and support and advance their recovery plans once the crisis is over.

In addition, as it does every day with its portfolio companies, CDPQ will continue to deploy the financial and operational expertise of its teams to help the selected companies in developing innovative and structuring financial solutions. These solutions could include various financial instruments based on companies’ needs in the current conditions.

“It’s essential for CDPQ to join the collective effort during the COVID-19 crisis. The envelope announced today, and the personalized advice that our teams provide to portfolio companies, represent important contributions to Québec’s economy in these difficult but temporary circumstances. This initiative is a good example of our two-fold mission to meet the needs of our depositors and support Québec’s companies and economy,” said Charles Emond, President and Chief Executive Officer of CDPQ.

Companies that wish to request financing are invited to fill out the form at www.cdpq.com/en/form-covid-19. After CDPQ receives the form, companies will quickly be contacted by telephone to obtain further information and assess the request.

In addition, all CDPQ teams, in Québec and around the world, are currently mobilized and continue to manage Quebecers savings with rigour in these unique times.

“The world and the markets are facing a major health and economic crisis. We’re closely monitoring our portfolio and the various asset classes through the COVID-19 crisis. As a long-term investor, we have built a diversified portfolio that is designed to generate returns that meet our depositors’ needs over the long term. While not immune to the economic consequences of this historic pandemic, CDPQ is solidly positioned, even after what happened in recent weeks on the markets, as we have the liquidity necessary to weather the current storm and what may come in the future. We have a fair amount of flexibility; we are able to clearly identify risks, and therefore take cautious and progressive action when the time is right to seize the opportunities that such conditions may have to offer,” added Mr. Emond.

Philanthropic and community donation

CDPQ also wishes to support the numerous organizations that directly address the basic needs of the most vulnerable people, as these organizations are currently facing significant challenges. To provide support and help them maintain essential services or expand their reach, CDPQ is donating $300,000, to be divided among five organizations:

• Centraide of Greater Montreal’s Emergency Fund, dedicated to the most vulnerable people;
• Canadian Red Cross, for its Community Support Services;
• Little Brothers, who especially work with the elderly in need;
• Tel-jeunes, which supports young people and parents with free and confidential professional counselling services;
• Alloprof, which provides valuable educational support services for parents.

Salary freeze and postponed variable compensation

Given current economic conditions, CDPQ has decided to freeze the salaries of all leaders in the organization and its subsidiaries.

The payment of variable compensation to CDPQ leaders for 2019, which takes into account the solid results of the last five years and forms part of their total compensation, as is standard in the financial industry, will be postponed until the third quarter of 2020. This measure also applies to our subsidiaries’ leaders.

In addition, the members of the Executive Committee have decided to postpone and co-invest the maximum variable compensation possible for a period of three years, i.e. until 2022, as of January 1, 2020. These postponed amounts will rise and fall in tandem with CDPQ’s returns, clearly demonstrating their trust and commitment to executing the organization’s mission and their full solidarity with what our depositors are experiencing in these extraordinary times.

ABOUT CAISSE DE DÉPÔT ET PLACEMENT DU QUÉBEC

Caisse de dépôt et placement du Québec (CDPQ) is a long-term institutional investor that manages funds primarily for public and parapublic pension and insurance plans. As at December 31, 2019, it held CAD 340.1 billion in net assets. As one of the largest pension fund in Canada, CDPQ invests globally in financial markets, private equity, infrastructure, real estate and private debt. For more information, visit cdpq.com, follow us on Twitter @LaCDPQ or consult our Facebook or LinkedIn pages.

Let me begin by stating CDPQ is in a unique postion with its dual mandate to support Quebec's economy and focus on maximizing returns without taking undue risks.

The announced measures are absolutely right in every respect, including the salary freezes, bonus delays and delays of variable compensation for executive leaders.

When times are tough and millions of people are losing their job through no fault of their own, you lead by example, and I think the Caisse is leading by example.

I remember in 2009, I went to Ottawa and testified in front of a Parliamentary committee and stated it was absolutely ridiculous that large Canadian pensions doled out huge compensation and bonuses right after the 2008 crisis.

I know the formula well, compensation is based on long-term results, but let me also state it's terrible optics and it shows a complete disregard of what is going on out there if you're doling out multi millions to executive leaders in this environment.

And that doesn't just go for big pensions, it also applies to big banks and other organizations, show some humility, respect and compassion for the people suffering right now (ie. don't be greedy arrogant jerks looking to score a big bonus when a depression is hitting us!).

As far as injecting $4 billion to support its portfolio companies and other Quebec companies that are experiencing difficulties because of this COVID-19 crisis, I think that is not only part of CDPQ's mandate, it's also the right thing to do during this challenging time.

The government of Canada and the Quebec government have implemented their measures but CDPQ can offer a lot more than money, it has operational and financial expertise to help its Quebec portfolio companies navigate this storm.

Did Quebec Premier François Legault talk to Charles Emond and is his government behind these measures? I have no doubt the two men talk but CDPQ is an independent organization and it has a clear dual mandate and acted upon it.

Will CDPQ escape the carnage from COVID-19? No, it won't. All of Canada's top ten pensions will get hit but unlike their US counterparts, they are all in a good position to ride out this storm.

Almost all of Canada's large pensions were positioned defensively coming into this year, nobody could have predicted this pandemic (but some of us saw big trouble in late January, noting that asymptomatic transmission would be a game changer for this novel coronavirus, and it definitely is!).

Anyway, CDPQ's public and private market assets will get hit. Its real estate subsidiary, Ivanhoé Cambridge, has well publicized problems with its retail portfolio and I expect it to take further write-downs in its retail portfolio this year (as will other large pensions).

Some of its infrastructure assets (airports, toll roads) will also suffer losses, just like everyone else, and its massive Quebec portfolio will get hit, which is why it's stepping up efforts to provide much needed liquidity to profitable companies that are experiencing difficulties.

Still, Charles Emond, its new CEO, was on television earlier this year stating there was no profit growth supporting the big move in stocks, and he was absolutely right.

He knew the moves were unsustainable as did everyone else at CDPQ which tells me they were positioned more defensively and that helped them absorb some of the losses in Q1 (some, not all, they will be hit).

Lastly, Quebec now has 4,611 COVID-19 cases, almost half of all the cases in Canada (we are testing more and our spring break was a week before Ontario’s, before the borders were shut), but Premier François Legault shared some good news today:

In Premier François Legault's public briefing on the coronavirus situation in Quebec as of April 1, he announced what the government has done in the past few weeks and will continue to do in upcoming weeks. Legault said that he has asked Quebec health officials to release, as soon as possible, the most probable scenario for what Quebec will be seeing in relation to COVID-19 in upcoming weeks. And, he announced that, as we reach the first day of April 2020, the most recent confirmed number of cases of COVID-19 in Quebec is now a total of 4,611.

The good news of the day is that there have been no additional people put into intensive care since March 31.

Among other good news, Legault shared with us that the province has managed to free 6,000 beds for anyone who gets hospitalized due to the novel coronavirus. Although he believes we will not need this many. Legault reassured us that we are prepared for this fight, but that we cannot give up.

He reminded us that Quebec is one of the places that test the most for COVID-19 in the world.

Legault also stressed that under no circumstance should you go visit anyone older than 70 for the time being. "It is a matter of life and death," Legault said.

Let me just say Premier François Legault and his health minister, Dr. Horacio Arruda, have done and are doing an excellent job, communicating and just being great leaders throughout this crisis.

During today's briefing, Dr. Arruda reminded all Quebecers that just because we will reach an peak soon, it doesn't mean you can relax and stop social distancing. He said if people do that, the curve will steepen fast and we will get into big trouble.

That's very important to remember because a lot of idiots will (wrongly) think that once a peak is reached, it's time to ignore public health measures and start partying again.

Importantly, this virus isn’t going away any time soon, we need to prepare now for a second wave come this fall and we need to be extra vigilant until proven treatments and a vaccine become widely available. We aren't there yet and the next month will be a very diffcult one, especially in hard hit New York.

Below, Quebec Premier François Legault, Health Minister Dr. Horacio Arruda and Health and Social Services Minister Danielle McCann update Quebec's population on the latest developments on COVID-19 (in French and English; my wife and I watch it every day at 1:00 p.m. sharp).

And stocks sank on Wednesday as Wall Street kicked off the second quarter on a sour note amid concerns the coronavirus will keep the economy shut down longer than expected.

Mohamed El-Erian, chief economic advisor at Allianz, joins "Squawk Box" to discuss the markets as investors prepare for the first day of trading of the second quarter. He talks about the looming liquidity issue companies are facing because of coronavirus pandemic.