ANDREW WILLIS - From Tuesday's Globe and Mail
The Caisse de dépôt et placement du Québec, hammered by losses on international holdings, has been forced in recent weeks to sell billions of dollars of stocks into a falling market.
A fund that began the year with $155.4-billion of assets has sold $10-billion of stocks in the past two months, sources said.
Canada's biggest pension fund needed cash to shore up or shut down money-losing positions in areas such as currency hedging and derivatives, along with international real estate and private equity. Part of the problem, sources said, is that the fund's hedging strategy was sideswiped by the recent fall in the Canadian dollar.
“The Caisse is dumping stock into a collapsing market, so losses are no longer just on paper, they've been realized,” said one executive familiar with the fund's operations.


The Caisse manages Quebeckers' retirement savings, and the spectre of losses cutting into pension cheques has become a hot-button issue in the three-week-old provincial election campaign.
Caisse chairman Pierre Brunet and interim chief executive officer Fernand Perreault held a press conference Friday to address concerns with the fund. The pair said the Caisse has $20-billion in cash or short-term investments.
But they refused to reveal how the fund has fared during the market meltdown; performance numbers are traditionally released at the end of each year.
Caisse CEO Richard Guay is in the middle of a four-week medical leave that colleagues blame on “fatigue,” and his absence is feeding rumours of substantial losses.
“The Caisse is facing margin calls after losses on many of its international investments, including illiquid holdings such as real estate, infrastructure and private equity funds,” said the head of one investment bank. “They are having to put up more collateral against their holdings, at the worst possible time.”
The Caisse started this year with $56-billion of stocks in its portfolio. It also holds a relatively large amount of alternative asset plays, such as real estate, hedge funds and private equity.
Mr. Guay is the former chief investment officer at the fund – he formally took the top job in September – and these relatively illiquid holdings were part of his strategy to seek better returns outside public markets.
The Caisse had $29-billion in real estate, $17-billion in private equity and $7.7-billion in hedge funds when it last published its positions, at the end of 2007. One source familiar with the Caisse's portfolio said, “Richard Guay put a strategy in place that didn't recognize liquidity risk.”
Mr. Perreault confirmed that the Caisse is reviewing its derivatives portfolio. “Like all investors of our size, we are taking a second look at derivatives,” he said at the press conference.
Every pension fund is losing money as markets fall – the CPP Investment Board recently announced an 8.5-per-cent loss for the three months ended Sept. 30, which translates to a $10.3-billion slide in the value of its assets.
However, performance and liquidity problems are more acute for the Caisse because the fund has $13-billion tied up in asset backed commercial paper. The Caisse's ABCP holdings have been locked up in a restructuring since August, 2007.
“Clearly, having their capital frozen in ABCP is an enormous issue,” said one senior banker in Montreal who deals with the Caisse. “At a time they need to move cash around, they have very little liquidity.”
Last week, the Caisse disbanded a 10-person internal team that ran $4.5-billion of international equities, moving to an index-based strategy for those funds. The fund said that decision was not related to the financial crisis, or its ABCP holdings.
With files from Bertrand Marotte in Montreal.