Caisse reports significant losses

The Caisse de dèpôt et placement du Quèbec announced a 25% decrease in returns for 2008.

The net investment results were down $39.8 billion, 56% of which is unrealized decreases in value. These losses have cancelled out a large portion of the $63.2 billion in returns that the Caisse were earned in the last five years.

After five consecutive years of first-quartile returns, the Caisse’s losses for 2008 are significantly greater than the -18.4% median loss for large Canadian pension funds that have at least $1 billion of assets.

Several factors that led to these increased losses were the cost of foreign exchange risk hedging and the additional provision for asset-backed commercial paper (ABCP).

“As with all other investors, the first element that explains our return this year is the global financial crisis that broke out in the fourth quarter,” said Fernand Perreault, president and chief executive officer of the Caisse. “But certain factors had a specific or more pronounced impact on our portfolio, such as our large holdings of ABCP and the cost of hedging the foreign exchange risk of our assets outside Canada, which increased significantly as the Canadian dollar fell.”

As a way to protect itself from the backlash of the financial crisis, in October 2008 the Caisse sold some equities, closed out futures contracts and reduced its foreign exchange hedging to increase its liquid assets and reduce its stock market exposure.

“Given the markets’ volatility since the end of 2008, these decisions significantly improved our overall positioning,” Perreault explained. “The rebalancing of the portfolio toward equities will take place gradually as a function of our assessment of the various markets and in cooperation with our depositors.”

Unrealized losses totaled $22.4 billion in 2008. Net investment income, including interest income, dividends and rent, amounted to $5.8 billion. Realized losses on the sale of investments during the year totaled $23.2 billion, including $6.1 billion for the realized portion of the cost of foreign exchange risk hedging alone.

(02/25/09)