It has been a baptism by fire for the new CEO of Canada’s largest institutional investor.
Richard Guay officially took over the top job at the Caisse de dépôt et placement du Québec recently, in the midst of what could be described as the worst financial crisis since the Great Depression.
But Quebecers, who entrust their public pension savings — including contributions to the Quebec Pension Plan — to the Caisse de dépôt, can take some comfort in knowing that a professional money manager is at the helm in these stormy seas — not a political appointee, as in years past.
Guay, 47, is a Caisse de dépôt insider who has held a series of positions since joining the organization in 1995 for what was supposed to have been a one- or two-year hiatus from his then-job as finance professor at the Université de Montréal’s HEC business school. Quebec Finance Minister Monique Jérôme-Forget pointed to his experience as a key consideration in his selection in this time of crisis.
Guay says his No. 1 job will be to deal with the credit crisis. “In the coming months, my first priority will be to see how the Caisse is going adjust to this new and difficult economic context,” Guay said during his first press conference as CEO. He also warned Quebecers not to expect the kind of strong returns they’ve become accustomed to over the past five years.
Guay took over the CEO job on an interim basis in May, when Henri-Paul Rousseau, who had been CEO since 2002, unexpectedly announced he was joining Power Corp. of Canada. And there’s no doubt Rousseau had groomed Guay for the top job. For the past two years, Guay has been the No. 2 person at the Caisse de dépôt, serving as chief investment officer, in which role he was responsible for asset allocation of investments.
Before that, Guay handled key roles for Rousseau as vice president of risk management and relations, dealing with the 26 depositors whose money the Caisse de dépôt manages, a group that includes the Quebec provincial police, the provincial civil service pension fund and the provincial auto insurer.
Guay holds a chartered financial analyst designation, a PhD in financial economics and a master’s degree in economics from Queen’s University. He also holds a master’s of science degree in finance from HEC Montréal. Before he was recruited by the Caisse de dépôt, he spent five years as a professor at HEC, teaching finance, portfolio management and capital market theory.
Guay admits he has big shoes to fill in succeeding Rousseau — and that’s true in every way imaginable. Rousseau, with his burly, six-foot, four-inch frame, is a giant compared with the slight Guay. As well, Guay has a friendly and low-key personality, another contrast with Rousseau, who is a forceful, colourful speaker with a reputation as a bit of a grouch. And under Rousseau’s watch, the Caisse de dépôt generated a 12.4% average annual compound return for the past five years, putting it in the top 5% of large Canadian pension fund managers. Assets under administration had doubled to $155.4 billion.
Guay also indicates there will be no backsliding on a key part of Rousseau’s legacy — a change to the Caisse de dépôt’s mandate to ensure that investment returns, not supporting Quebec companies, is the overriding mission. Guay was asked at the press conference whether the Caisse de dépôt will help companies shut out of today’s tight credit markets.
“Perhaps there will be opportunities for the Caisse to help Quebec entrepreneurs refinance themselves,” he responded. “But it’s important to underline that this can’t be at the detriment of the Caisse’s returns to its depositors.”
Caisse de dépôt chairman Pierre Brunet has figures showing the Caisse de dépôt’s investments in Quebec have grown over the past five years, but not as fast as its overall AUA. In 2002, $21 billion of $77 billion in AUA was invested in Quebec, compared with $36 billion of $155 billion in 2007.
Over the years, the Caisse de dépôt has run into serious trouble making politically motivated investments in Quebec companies. The most recent example was on the watch of Rousseau’s predecessor, Jean-Claude Scraire, when the Caisse de dépôt backed an overpriced takeover of local cable operator Vidéotron in partnership with Quebecor Inc.
@page_break@There were other misadventures under Scraire, including ill-starred incursions into the Hollywood movie business and the Montreal fashion industry, as well as the construction of a head office building in Old Montreal that came in 400% over budget.
After Rousseau was appointed, he quickly set about cutting the fat, reforming the Caisse de dépôt’s risk management and shepherding a new provincial law governing the Caisse de dépôt that is aimed, in large part, at sheltering it from political meddling. It included a CEO selection process that, for the first time, took the choice out of the hands of the premier and gave it to the board of directors. Guay has had no connection to any party.
Although Guay can take his fair share of the credit for the Caisse de dépôt’s strong investment performance, he also has to take his fair share of the blame for its gaffes — notably, a $12.9-billion exposure to the non-bank asset-backed commercial paper market.
After the ABCP market froze up, the Caisse de dépôt, which put together a rescue operation along with other investors, had to book a $1.9-billion writedown. Guay says the Caisse de dépôt has learned from its mistakes: “After that experience, we carefully re-examined all our risk-management controls and our methods of measuring risk to prevent this kind of situation from occurring again.”
He adds that the Caisse de dépôt is working on making itself “more resilient” in managing unforeseen events.
Then, there’s the Caisse de dépôt’s huge investment in troubled British airports operator BAA PLC. The Caisse de dépôt had joined other investors, including Grupo Ferrovial SA of Spain and the Government of Singapore Investment Corp., to buy BAA, the world’s biggest airport company, in 2006. At the time, the Caisse de dépôt paid $2.3 billion for a 29% stake. Recently, BAA said it intends to sell its Gatwick airport in London in response to concerns raised by Britain’s anti-trust regulator this past summer.
“When we invested in BAA two years ago, it was on a long-term basis,” Guay says. “But I won’t hide from you that there have been some unpleasant surprises with that investment over the past two years. But our evaluation indicates that the value of our investment today is more than our cost. We are not losing money.”
Guay won’t venture a guess on what the Caisse de dépôt’s overall return will be this year. All he will say is that it’s shaping up to be a tough year for investors around the world — although, he notes, markets are volatile and could turn around quickly.
“It’s certainly a more difficult year for pension fund managers in Canada, the U.S. and around the world than the ones we’ve seen in the past five years. We need a long-term return of about 7%,” Guay says. “In a context in which we have 40% of our portfolio in bonds that are producing a return of less than 4%, we will have to get excellent performance from the rest of the portfolio to produce a global return of 7%.” IE
Guay ready for his tough task
New head of the Caisse de dépôt has been groomed by outgoing CEO Henri-Paul Rousseau
- By: Don Macdonald
- October 1, 2008 October 1, 2008
- 09:43