MONTREAL - The new chairman and CEO of the Caisse de Depot et Placement du Quebec, Canada's largest pension fund, has instituted a sweeping restructuring of the fund, including a 14% reduction in its work force and the closing of many foreign offices.
Henri-Paul Rousseau, who became chairman and chief executive officer of the Caisse in September, is scaling back the operations of the C$133 billion (U.S.$85 billion) fund, which just two years ago had embarked on a plan to become a global money management powerhouse (Pensions & Investments, Oct. 16, 2000).
The former administration "took the organization down a certain route that took them farther and farther away from their base constituency and from the original mission of the Caisse," said Keith Ambachtsheer, president of KPA Advisory Services Ltd., Toronto.
"They've pulled in their horns quite dramatically," said Patrick Walsh, a consultant with SEI Inc., Toronto. "There were a lot of guys (the previous executives) running a government agency and building an empire for themselves."
Mr. Ambachtsheer noted the Caisse's -5% return in 2001 concerns participants and members of the Quebec government, who have ultimate control over the fund's operations.
In a statement announcing the restructuring, Mr. Rousseau said: "The strategic orientations that I am setting out today for the Caisse involves refocusing the organization's operations on its fundamental mission as a fund manager in order to obtain a better return on assets. In the months and years to come, all the organization's resources and energy will be dedicated to achieving that objective."
Most of the changes were made at money management arm CDP Capital, which manages most of the Caisse's assets internally. Mr. Rousseau heads both organizations.
Tightening the reins
The changes include:
* firing several senior management officials as part of the abolition of 138 of the Caisse's 958 employees, for a 14% reduction of personnel;
* retrenching in the fund's foreign operations, including reducing to three (from 11) the number of foreign business offices;
* reducing operations, including a major restructuring of the fund's private equity operations;
* tightening administrative management;
* better defining investment priorities; and
* tightening risk management.
"They (the Caisse executives) had a way of doing things for 30 years," said Mr. Walsh. He said Jean-Claude Scraire, who resigned in May as chairman and CEO, and who had come in for harsh criticism after the fund's 2001 loss was announced, had simply "followed the same path as his predecessors."
The executives fired under the restructuring include Michel Nadeau, president of CDP Capital, the fund's money management subsidiary, who left last month; Claude Seguin, president of CDP Capital-private equity; Pierre Belanger, president, CDP Capital-Communications; Trudie Resch, partner, CDP Capital-Technology Ventures; Andre Duschesne, senior vice president, fixed-income and currencies; Bertrand Lauzon, executive vice president, finance and information technologies; and Chantal Levesque, president, Montreal Mode International, which gave advice and funding for the development and promotion of the Quebec fashion industry.
The operations of CDP Capital's C$13.8 billion private equity unit will be reorganized as three entities rather than six. The three entities will be CDP Capital-Americas; CDP Capital-Communications; and CDP Capital-Technology Ventures. CDP Capital-Financial Services, CDP Acces Capital and CDP Capital-International are being absorbed into the three remaining divisions of the private equity unit.
Andre Bourbonnais will be president of CDP Capital-Communications; he was president of CDP Capital-Financial Services. Paul Juneau will be president of CDP Capital-Americas; he was president of CDP Acces Capital. Serge Desjardins will be vice president of CDP Capital-Technology Ventures; he was vice president of CDP Capital-International.
In the 1990s, the Caisse "started creating a lot of affiliations and special funds around the world and opened new offices around the world," said Yves Breton, head of Eastern Canada operations for Mercer Investment Consulting, Toronto. He added that the fund's former management "was everywhere, creating exotic investment products, perhaps to increase their visibility."
He said the actions of the new management "are very good, and it's also good that it's being done very fast so the fund can go on after that."
The overall restructuring will also "keep the Caisse away from adventures in nationalism," said Stephen Jarislowsky, chairman and CEO of Jarislowsky Fraser Inc., a Montreal-based money management firm.
One of the most famous of those "adventures" was the Caisse's 2000 acquisition of Groupe Videotron Ltd., a Montreal-based cable television operator, for C$5.4 billion, beating out a bid from Rogers Communications Inc., a Toronto-based cable television and wireless network. Caisse officials maintain they had a right of first refusal to buy Videotron, but the general feeling by outside observers was that it was done to keep the company in the hands of Quebec executives.
The fund has had to write down its investment in Videotron, which contributed to its losses in 2001.
Mr. Jarislowsky said the acquisition of Videotron, as well as other activities by the Caisse, came about because of "politics - if people think they can get votes, they will do it." He said the government of Quebec gave Mr. Rousseau carte blanche to make changes "because it didn't want the criticism at election time of having bad results and doing nothing about it."
Mr. Jarislowsky thinks the changes have the Caisse "going in the right direction." He added, "The Caisse went too far in being entrepreneurial to the extent that they didn't know if certain investments would result in better returns for the fund."
Under the restructuring, the Caisse will continue its third-party investment operations, but each of the new investment groups will be responsible for recruiting new clients, whereas one separate entity had handled this area. In addition to the private equity group, there is CDP Capital-World Markets, which offers investment products and is now responsible for managing external mandates and the fund-of-funds operations, and CDP Capital-Real Estate Group, which will have the same structure as before.
The internal audit of the Caisse will assume greater importance and will become one of the main means of implementing the best business practices for all Caisse operations, according to the announcement of the restructuring.
The restructuring will save the Caisse C$22 million annually and will result in a one-time charge of C$10 million.