With US Investment, the Caisse Encounters Harsh Criticism

Canada's Caisse de dépôt et placement du Québec is facing scrutiny for US investment amid pressure to foster the province’s economic development.

(August 31, 2011) — The Caisse de dépôt et placement du Québec is encountering criticism for investments in the United States, thus failing to promote the province’s economic development.

Parti Québécois Leader Pauline Marois has been vocal in lambasting Canada’s largest pension fund manager for lending $211-million to Montreal-based Kruger Products LP to expand a tissue mill in Memphis, Tenn. According to Marois, the move by Caisse shows that it “has lost its soul,” failing to sufficiently stimulate Quebec’s economy.

In response to the criticism, the Caisse issued a statement. “Homegrown companies must go where the markets for their products are and cannot rely only on the Quebec market,” Normand Provost, executive vice-president, private equity and chief operations officer at the Caisse, said in a release. “We strongly believe that one of the ways for the Caisse to help nurture champion Quebec job creators is to support them in their expansion in new markets,” he said.

Additionally, the Caisse noted that it decided to provide a loan to Kruger following the understanding that the expansion of the Memphis facility presents an opportunity to heighten the returns to the fund’s Quebec depositors amid efforts to strengthen its foothold in North America.

The recent pressures on the fund to invest in Quebec is nothing new. In March, the fund said that its investments in publicly traded Quebec companies grew by more than $800 million or 38%, over the past 15 months as it gave a greater weighting to local firms and provided portfolio managers with more flexibility to make investments in Quebec rather than the broader Canadian benchmark, which is largely fueled by energy and materials stocks. Furthermore, the fund said it integrated the new National Bank Quebec Index, which focuses solely on Québec-based companies, into its reference index for the Canadian Equity portfolio.

“When it comes to investing in Québec, the Caisse has an undeniable comparative advantage vis-à-vis its peers: close long-term relationships with the vast majority of companies and an excellent knowledge of the challenges they are facing,” said Jean-Luc Gravel, Caisse’s Executive Vice-President, Equity Markets, in a statement. “This comparative advantage has led us to target the Québec market, which holds many promising companies, to generate returns while contributing to Québec’s economic development. We believe the two go hand in hand.” He added that one of the fund’s priorities is to assist Quebec companies with growth potential domestically and abroad by sharing expertise and resources.

In November 2010, Chief Executive Michael Sabia asserted that the Caisse wanted to help Quebec companies by identifying competent, dynamic small and medium-sized companies in Quebec that can benefit from its expertise and support to broaden their global presence.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742