Quebec's legislative committee hearings into the Caisse de dépôt et placement's $40-billion meltdown should make two things clear to Caisse managers and their political overseers:
The Caisse is a pension fund and its managers should be required to run it like one. Their No. 1 priority should be the prudent stewardship of taxpayer-provided money that is supposed to support retired Quebecers through to the end of their lives.
Secondly, a pension fund is not a political tool. Parti Québécois finance critic François Legault should stop advocating the use of the Caisse as a private lender to Quebec corporations to keep them in the province.
We've been down that dead-end before. As a strategy, economic nationalism has proven to be almost guaranteed to run counter to what should be the fund's one and only goal: long-term solvency.
Former Caisse CEO Henri-Paul Rousseau complained early in his 2002-2008 tenure that the $2.9 billion the Caisse invested to help Quebecor Inc. beat out Toronto-based Rogers Communications Inc. in the battle over Quebec cable operator Videotron resulted in a $435-million write-down for the pension fund.
But if Rousseau and his fellow managers steered clear of similar politically inspired investments, prudent stewardship seemed to be a concept that eluded them.
Despite knowing that other investors were increasingly nervous about asset-backed commercial paper, the Caisse continued to buy it: $900-million worth in the summer of 2007 alone.
By the time the market in asset-backed commercial paper collapsed in mid-August that year, the Caisse held $13 billion worth of now toxic and soon to be nearly worthless paper.
Even when the global economic crisis sent the markets into meltdown, Fernand Perreault, interim CEO, insisted that the Caisse's risk-management policies were "neither new, nor unique, nor unusual, nor excessively risky in the context that existed before the fall of 2008," according to published reports.
Those risk-management policies had better change, and soon. They have caused chaos in a number of Quebec's most important public institutions. As a result of the Caisse's losses, the Quebec Pension Plan will have to start charging higher premiums.
Quebec's workers' compensation board is also looking at increasing premiums. The accumulated deficit of the province's automobile insurance board (the SAAQ) rose sharply to $2.4 billion. It, too, might end up having to charge higher premiums.
A pension fund is not a crapshoot. Let's hope current Caisse CEO Michael Sabia gets that.