The Caisse publishes its 2010 annual report

The Caisse de dépôt et placement du Québec today released its annual report for fiscal year 2010, following its tabling in the National Assembly by the Québec Finance Minister.

“I am pleased to present the 2010 annual report that provides an account of the Caisse’s activities. This annual report allows Quebecers to see our progress and strong results in 2010. We still have much work to do but I am convinced that our organization is on track,” said Michael Sabia, President and Chief Executive Officer of the Caisse.

In addition to the detailed analysis of financial results published on February 24, 2010, this annual report includes sections on key elements to better understand the Caisse’s activities. Here are the highlights:

2010 Performance

• The Caisse achieved a 13.6% return, outperforming its benchmark index by 4.1% and significantly outpacing its peers.
• Nine of the 11 actively managed portfolios outperformed their benchmark index or added value relative to their targets.
• Rigorous and effective management of operating expenses, which have fallen 14% over two years, or $45 million.
• Implementation of a new operational business model.
• Achieved objectives arising from the five strategic priorities to strengthen the Caisse’s foundations.

Portfolio Offering

• Changes were made to the portfolio offering to simplify it and make it more transparent and flexible for depositors.
• Assets with similar characteristics and risk-return profiles were grouped into the same portfolio.
• To broaden the range of choices for depositors, certain fixed income and equity portfolios are now indexed.
• The portfolio offering is complemented by overlay strategies that enable  depositors to customize a hedge against certain risks.

Risk Management

• Integration of the risk-return concept into day-to-day investment operations.
• Reduction of the overall portfolio’s absolute risk (10%) and active risk (56%), providing the Caisse with additional leeway.
• 50% decrease in overall leverage over two years.
• Strengthening of risk management tools and practices to better identify and quantify risks — and develop a risk culture based on collaboration between the Investment and Risk teams.

Contribution to Québec’s Economic Development

• Adopted of a Québec economic development contribution statement to:
• Increased total assets in Québec by $3.0 billion, reaching $36.5 billion at the end of 2010.
• $1.7 billion in new Québec company investments and commitments.
• Increased investment in Québec publicly traded companies by a total of over $800 million since 2009.

Compensation

The Caisse’s new compensation program came into force in 2010. Here are its main objectives:

• Pay for performance while being more demanding than the previous program.
• Offer competitive compensation to attract, motivate and retain employees with experience and expertise that enable the Caisse to achieve its strategic objectives.
• Strike the best risk-return balance and align the interests of management and depositors.

Implementation and enforcement

• Rigorous market benchmarking by renowned firm Towers Watson.
• Hugessen Consulting, an independent consulting firm known for its pension fund compensation expertise, validated the new program and its implementation at the request of the Board of Directors.

Differ and better align interests

To better align the long-term interests of the Caisse’s staff with the objectives of the depositors, a significant portion of the total incentive compensation is deferred for three years in accordance with the industry’s best practices:

• 25% of the total incentive compensation for management and portfolio managers.
• At least 40% of the total incentive compensation for senior executives.
• The deferred amounts paid in 2013 will be based on the Caisse’s returns during the period.

Incentive compensation in 2010: below the median even if returns are first-quartile

• Despite a first-decile return (in the top 10 percent) in 2010, average total compensation was below the benchmark market median (in the 48th percentile) or well below the Caisse compensation authorized by the Regulation respecting internal management.
• $35 million in total incentive compensation paid in 2011 for 2010 (including $2.5 million for the five highest compensated executives — see page 112 of the 2010 annual report), compared to:
  • 2009: $20.9 million
  • 2008: $0
  • 2007: $44.2 million
  • 2006: $42.5 million
• In addition to the incentive compensation paid in 2011, the Caisse provided $10 million in deferred incentive compensation, payable only in 2013 (including $2.0 million for the five highest compensated executives — see page 112 of the 2010 annual report).
• As he undertook to do upon joining the Caisse, Mr. Michael Sabia, President and Chief Executive Officer of the Caisse, waived for a second year any incentive compensation.

Responsible Investment

• The Caisse updated its Policy on Responsible Investment. It revolves around four key areas: 
  • Shareholder engagement by exercising its voting rights
  • Integration of environmental, social and governance (ESG) criteria
  • Exclusion of securities from portfolios
  • Responsible Investment Committee

ABOUT THE CAISSE DE DÉPÔT ET PLACEMENT DU QUÉBEC
The Caisse de dépôt et placement du Québec is a financial institution that manages funds primarily for public and private pension and insurance plans. As at December 31, 2010, it held $151.7 billion in net assets. As one of Canada’s leading institutional fund managers, the Caisse invests in major financial markets, private equity and real estate. For more information: www.cdpq.com.