The Caisse publishes its 2011 annual report

The Caisse de dépôt et placement du Québec released its annual report for fiscal 2011 today, following its tabling in the National Assembly by the Québec Finance Minister.

“This annual report reflects our efforts to enable the Caisse to chart a path in a year marked by great volatility. In 2011, the Caisse also raised the level of its investments in Québec and became more involved in the business community,” said Michael Sabia, President and Chief Executive Officer of the Caisse.

“As a result of our work over the last three years to improve the Caisse on many levels, today it has the agility and financial flexibility to seize the best business opportunities,” added Mr. Sabia. The 2011 annual report provides a detailed analysis of the financial results published on February 23, 2011 as well as a review of the Caisse’s activities.

The highlights are as follows:

2011 PERFORMANCE

• Return of 4.0% and net asset growth of $7.2 billion, due to $5.7 billion in net investment results and $1.5 billion in net deposits;
• Thirteen of the seventeen specialized portfolios posted positive results;
• Ratio of expenses to average net assets went from 19.4 basis points in 2010 to 18.0 basis points in 2011, placing the Caisse among the leading institutional fund managers.

CONTRIBUTION TO QUÉBEC’S ECONOMIC DEVELOPMENT

• The Caisse strengthened its commitment to Québec’s economy, focusing on the following priorities:
  • Seek and seize the best business and investment opportunities;
  • Serve as a bridge between Québec companies and global markets;
  • Strengthen entrepreneurial and financial succession.
• Increase of $4.7 billion in total assets in Québec, to $41.2 billion at the end of 2011 (see page 68 of the annual report):
  • Total assets in the private sector rose $2.0 billion, reaching $22.5 billion at the end of 2011.
• More than 100 new investments in and commitments to Québec companies, for a total of $2.1 billion, which resulted in the completion of investment projects totaling $5 billion;
• The weighting of Québec securities in the Canadian Equity portfolio increased $600 million in 2011, and $1.2 billion since the end of 2009 (see page 73 of the annual report);
• Investment of close to $60 million in approximately 60 small and medium-sized companies in every region of Québec, through the Capital croissance PME fund, a partnership between the Caisse and Desjardins Group.

RISK MANAGEMENT

• Implementation of a proactive risk management strategy in response to the debt crisis in the U.S. and Europe;
• Active and rigorous management of credit, counterparty and liquidity risk (see page 55 of the annual report);
• Despite a high degree of volatility in 2011, absolute risk reduced from 31.4% to 29.9% and active risk reduced from 4.2% to 3.7% (see page 52 of the annual report);
• Liquidity of $45 billion as at December 31, 2011, enabling the Caisse to meet its potential commitments, even in the event of a major market correction;
• Overall leverage maintained at 17%, less than half the leverage at the end of 2008.

COMPENSATION
Review of the main features of the compensation program implemented in 2010

Main objectives

• Pay for performance while being more demanding than the previous program;
• Offer competitive compensation to attract, motivate and retain employees with the competencies that will enable the Caisse to achieve its strategic objectives;
• Ensure a better risk-return balance and align the interests of senior management and depositors.

Implementation and application

• Rigorous benchmarking of the reference markets by a respected firm, Towers Watson;
• At the request of the Board of Directors, Hugessen Consulting, an independent consulting firm recognized for its expertise in the compensation of pension fund personnel, validated the new program and its application;
• The performance of all employees is subject to a rigorous evaluation process to determine the incentive compensation to which they are entitled (see page 114 of the annual report).

Staggering and better alignment of interests

• To better align employee interests with the Caisse’s long-term sustained success, a substantial portion of the total incentive compensation of certain groups of employees is deferred over a three-year period:
  • A minimum of 40% of the total incentive compensation of the members of the executive;
  • A full 25% of the total incentive compensation of management and portfolio managers;
  • Deferred amounts paid in 2014 will vary upward or downward based on the returns generated by the Caisse from now until then.

2011 Incentive Compensation

• Average total compensation of Caisse employees was close to the reference market median, even though the 2011 return was in the first quartile (see page 117 of the annual report).
• Total incentive compensation paid in 2012 for 2011 performance is $31.4 million (including the executive), compared to:
  • 2010: $35 million
  • 2009: $20.9 million
  • 2008: $0
  • 2007: $44.2 million
• This year, as part of the incentive compensation program, employees deferred, until 2014, an amount of $13 million, 30% more than last year (including the executive).
• Incentive compensation paid in 2012 on 2011 performance to the five most highly compensated senior managers, who report directly to the President and Chief Executive Officer, totaled $2.56 million, 15% less on an annualized basis than the previous year.

Compensation of the President and Chief Executive Officer

• Upon joining the Caisse, Mr. Sabia waived any form of incentive compensation for 2009 and 2010. Mr. Sabia had also waived participation in any pension plan, for the duration of his mandate. He also waived severance pay;
• Additionally, in accordance with his wishes, Mr. Sabia has received no salary increase since taking office in 2009. His base salary remained unchanged in 2011 and will remain the same in 2012;
• Regarding Mr. Sabia’s incentive compensation for 2011, in accordance with policies that promote the achievement of the Caisse’s business objectives and the organization’s performance, the Board of Directors qualified the performance of the President and Chief Executive Officer as superior and granted him incentive compensation corresponding to the achievement of these objectives (see pages 118 and 119 of the annual report);
• Of this incentive compensation, an amount of $400,000 was paid to Mr. Sabia, who elected to defer an amount of $800,000 in a co-investment portfolio. The value of the co-invested amount will vary upwards or downwards, based on the Caisse’s returns between now and 2014;
• For 2011, total compensation of the President and Chief Executive Officer, including the base salary and paid and deferred incentive compensation, for superior performance, remains 43% less than the average compensation paid in 2011 to presidents and chief executive officers of the Caisse’s main peers.

RESPONSIBLE INVESTMENT

• The Caisse’s Responsible Investment Policy comprises three components:
  • Shareholder engagement;
  • Environmental, social and governance (ESG) criteria integrated into the analysis of related investments and risks;
  • Exclusion of companies from its investment portfolio.
• In 2011, various steps were taken in accordance with this policy, particularly:
  • Exercising voting rights on 48,001 proposals at 4,890 shareholder meetings (see pages 94 to 97 of the annual report);
  • Implementing a Sustainable Investment Professional Certification Program in partnership with Concordia University;
  • Participating in various groups, including the Pension Investment Association of Canada Governance Committee, the Carbon Disclosure Project’s Canadian Advisory Group and the Social Investment Organization’s Pension Fund Group.

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, 2011, it held $159.0 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.