La Caisse publishes its 2013 Annual Report

La Caisse de dépôt et placement du Québec today released its 2013 Annual Report.

In addition to a detailed analysis of the financial results announced on February 26, the 2013 Annual Report provides a complete review of La Caisse’s activities. Below are the highlights:

FOUR-YEAR PERFORMANCE

• La Caisse recorded a 10.0% annualized return and its net assets increased by $68.5 billion, as a result of net investment results of $61.2 billion and net deposits of $2.3 billion.
• Each of the four asset classes contributed significantly to La Caisse’s overall four-year return, which outperformed its benchmark portfolio.
• The returns of the eight main depositors ranged from 10.6% and 9.1%.

2013 PERFORMANCE

• The Caisse had an overall return of 13.1% and its net assets rose by $23.9 billion as a result of $22.8 billion in net investment results and $1.2 billion in net deposits.
• The returns of the eight main depositors ranged from 15.5% to 8.9%.

CONTRIBUTION TO QUÉBEC’S ECONOMIC DEVELOPMENT

• Strategy based on three main thrusts:
  • Seek out and seize the best business and investment opportunities;
  • Serve as a bridge between Québec companies and global markets; and
  • Strengthen the vitality of entrepreneurship and the next generation of financial leaders.
• Strong growth in La Caisse’s new investments and commitments in Québec, which total $11.9 billion since 2009, including $3.6 billion in 2013.
• $6.7 billion increase in La Caisse’s total assets in Québec in 2013, including $4.9 billion in the private sector (see page 56 of the Annual Report):
• New commitments of $600 million to Québec SMEs in 2013, including $350 million for two promising sectors of the economy, through Sodémex Développement for natural resources companies and the Québec Manufacturing Fund.

RISK MANAGEMENT

• Slight decrease in absolute risk to 29.4% at year-end 2013, from 30.6% at year-end 2012, mainly as a result of deployment of the Global Quality Equity portfolio, better diversification of the Infrastructure portfolio and reduced risk of the ABTNs (see page 44 of the Annual Report).
• Active and rigorous management of credit, concentration, counterparty and liquidity risks.
• As at December 31, 2013, La Caisse’s portfolios had $44 billion in liquidity, which allowed the institution to respect its potential commitments fully, even in the event of a major market correction.
• Sustained management of La Caisse’s liabilities, remaining stable at 19% in relation to assets.

COMPENSATION

Review of the features of the compensation program that came into effect in 2010

Main objectives (see page 91 of the Annual Report)

• Provide pay for performance taking into account returns generated for clients and a sustained performance over several years.
• Offer competitive compensation to attract, motivate and retain employees whose experience and expertise enable La Caisse to reach its strategic objectives.
• Align the interests of officers and depositors.

Implementation and application

• Rigorous benchmarking of reference markets is carried out by Towers Watson, a recognized firm.
• Towers Watson assesses the total compensation of La Caisse’s employees below the median in relation to the reference markets for a superior performance over four years.
• 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, validates the fair application of the compensation program (see page 95 of the Annual Report).
• Each employee’s performance is subject to a rigorous review process to determine the incentive compensation to which the employee is entitled (see page 92 of the Annual Report).

Significant increase in mandatory co-investment thresholds

• To foster better alignment of the interests of employees with the sustained long-term success of La Caisse, a significant portion of the total incentive compensation of some groups of employees is deferred over a three-year period.
• To stay at the forefront of the best practices adopted by leading financial institutions, the minimum thresholds that must be paid into a co-investment account were increased significantly starting in 2013 for employees having a direct influence on La Caisse’s organizational and financial performance:
  • At least 55% of the total incentive compensation of members of the Executive Committee (up from 40%) – or more than half of their incentive compensation – thereby strengthening the alignment of the interests of officers with those of depositors and making this measure even more stringent than current industry practices;
  • 35% of the total incentive compensation of Senior Vice-Presidents, Vice-Presidents and intermediate and senior investment employees (up from 25%);
  • 25% for other high-level managers and professionals;
  • The deferred amounts to be paid in 2016 in respect of 2013 will be increased or decreased according to La Caisse’s average absolute overall return during the period.

2013 incentive compensation

• The purpose of the incentive compensation program is to compensate a sustained, four-year performance. La Caisse is in its fourth year of applying this program, which enables it to evaluate performance fully on the basis of its long-term strategy.
• Taking into account incentive compensation, the total compensation of La Caisse’s employees in 2013 was below the median of the reference markets for an annualized return of 10.0% over a four-year period (2010 to 2013), corresponding to $6.0 billion of value added over and above the benchmark portfolio, representing a superior performance over four years (see page 95 of the Annual Report).
• The total incentive compensation paid in 2014 for the period ended December 31, 2013 was $38.9 million (including executives).
• This year, as part of the incentive compensation program, employees (including executives) deferred $18.9 million until 2016.
• The incentive compensation co-invested under the incentive compensation program introduced in 2010 was paid in 2013, pursuant to the conditions of the program and the tax rules in effect. The amounts co-invested in 2010 by the five most highly compensated executives who report directly to the President and Chief Executive Officer are provided in Note 1 on page 112 of the 2010 Annual Report. Accordingly, a new column was added to the compensation table on page 101 of the 2013 Annual Report to present these amounts.

Compensation of the President and Chief Executive Officer

• When Mr. Sabia joined La Caisse, he voluntarily waived any form of incentive compensation for 2009 and 2010; he therefore could not co-invest an amount in 2010 and received no payment in this respect in 2013. When Mr. Sabia was appointed in 2009, he also waived membership in any pension plan for the duration of his mandate. He also waived any severance pay for termination of employment.
• Also, at his request, Mr. Sabia has received no salary increase since he was appointed in 2009. His base salary remained unchanged in 2013 as it will in 2014.
• With respect to Mr. Sabia’s incentive compensation for 2013, in accordance with policies on achievement of La Caisse’s business objectives and its performance, the Board of Directors deemed his performance exceptional and awarded him incentive compensation for exceeding the objectives set over the past four years (see pages 97 and 98 of the Annual Report);
• Of this incentive compensation, $600,000 was paid to Mr. Sabia and he deferred $800,000 to the co-investment account. The value of the co-invested amount will vary upward or downward according to La Caisse’s average absolute return over the three-year period ending in 2016.
• In 2013, the direct compensation paid to the President and Chief Executive Officer, including base salary, incentive compensation and perquisites, was 69% lower than the potential direct compensation paid for a superior performance in the reference market, which is made up of his peers at the eight largest Canadian pension funds. For a superior performance, a difference of approximately $2.6 million has been identified between the direct compensation paid to the President and Chief Executive Officer and the reference market.

EXPENSES

• In 2013, the ratio of expenses to average net assets was 17.0 basis points, which positions La Caisse among the leaders in its category.
• Expenses include operating expenses. Operating expenses include compensation and external management fees.

RESPONSIBLE INVESTMENT

• La Caisse’s Policy on Responsible Investment has three main thrusts:
  • Integration of environmental, social and governance (ESG) criteria into its analysis of investments and associated risks (see page 73 of the Annual Report);
  • Shareholder engagement (see pages 73 to 75 of the Annual Report); and
  • Exclusion of securities from its portfolio (see page 75 of the Annual Report).
• In 2013, various actions were taken under this policy. For example:
  • La Caisse exercised its right to vote on 40,601 proposals in connection with 3,972 shareholder meetings (see page 75 of the Annual Report); and
  • It took part in various initiatives, including the Carbon Disclosure Project, the Water Disclosure Project and the Extractive Industries Transparency Initiative.

The electronic versions of the 2013 Annual Report and the 2013 Annual Report Additional Information are available at the following addresses:

• http://www.cdpq.com/sites/default/files/medias/en/nouvelles-medias/documents/ra2013_rapport_annuel_en.pdf
• http://www.cdpq.com/sites/default/files/medias/en/nouvelles-medias/documents/ra2013_renseignements_add_en.pdf

ABOUT LA CAISSE DE DÉPÔT ET PLACEMENT DU QUÉBEC

La 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, 2013, it held $200.1 billion in net assets. As one of Canada’s leading institutional fund managers, La Caisse invests in major financial markets, private equity, infrastructure and real estate, globally. For more information: www.cdpq.com.