Caisse in Quebec offers lessons for AIMCO in Alberta
Leaving CPP may provide catalyst to break reliance on oil, Kevin Carmichael writes.
Charles Emond, chief executive of Caisse de dépôt et placement de Quebec, one of Canada’s biggest institutional investors, could have called it a week on Monday.
That day, the Caisse (or, if you prefer acronyms, CDPQ) helped star-crossed Bombardier Inc. get out of the subway business and bought out the founder of Cirque du Soleil Entertainment Group.
Phew. But Emond wasn’t done. On Tuesday, when the public still was absorbing the Bombardier news, the main item on the Caisse’s website was a press release about its role in the takeover of a Norwegian company that uses ultrasound to make precision measurements by an outfit from Quebec City called Eddyfi NDT Inc.
The next day, CDPQ said it had done something similar for Knowlton Development Corp., a Longueil, Que.-based cosmetics maker that had designs on an Italian manufacturer of air fresheners.
“Private equity in Quebec is important for the Caisse,” Emond, who oversees the assets of the Quebec Pension Plan and 40 other provincial funds, told reporters in Montreal on Feb.
20, when CDPQ released its 2019 results.
The Caisse is unique among pension-fund managers in that it also has a mandate to promote economic growth. In Quebec, the CDPQ’S assets were worth almost $70 billion, including almost $50 billion spread among hundreds of local companies. It pumped some $3.3 billion into the provincial economy in 2019, offsetting some of the effects of the trade wars, which caused private investment to retreat.
“Can we do more?” Emond asked at the press conference. “We can hit the gas pedal.”
I assume members of Jason Kenney’s government in Alberta were watching all of this with interest. The premier is in a mood to overhaul his province’s pension system. He’s already made plans to transfer the more than $16 billion in the Alberta Teachers’ Retirement Fund to Alberta Investment Management Corp. (AIMCO), which oversees $108 billion belonging to some 30 provincial funds and endowments.
Kenney is also intrigued by the idea of quitting the Canada Pension Plan (CPP) and going it alone, just like Quebec.
Some think Kenney isn’t serious about pulling out of the CPP, and that he’s only seeking leverage in his ongoing battle with Prime Minister Justin Trudeau over how to confront climate change. “Alberta’s frustrated,” Leo de Beaver, who ran AIMCO between 2008 and 2014, said in an interview with Bnnbloomberg in November. “Sometimes you do something that may not be very logical just to get attention.”
Let’s assume Kenney is serious. Leaving the CPP could create too many problems to justify such a radical change. But it’s worth considering whether we’d all be better off if some of the mandatory pension contributions of Albertans who got rich off $100-oil were marshalled to help end the province’s dependency on a carbon-based economy by getting behind promising local companies. It would mean angering some of the libertarian think tanks from which he draws support and inspiration, but it might also provide the catalyst that the province needs to finally break its dependence on oil and gas.
“The No. 1 issue would be political interference,” Charles St-arnaud, chief economist at Alberta Central, which provides payments and other banking services for credit unions, said in an interview. “If a fund manager can work at arm’s length, it can work.”
CDPQ is a child of the Quiet Revolution. It was created in 1965 by the government of Jean Lesage to provide a measure of financial independence for a population that had tired of being subservient to anglophone corporate power and the Catholic Church. The Caisse’s place in Quebec is bigger than that of a typical investment house. Michael Sabia, who retired as chief executive in January after a decade as the guardian of Quebecers’ retirement savings, talked of people approaching him on the street to register their appreciation.
But a financial institution that was the product of a political project was inevitably influenced by politicians. For a long time, the Caisse had a poor reputation, said St-arnaud, a former Wall Street and City of London economist who grew up in Montreal.
These days, it’s the opposite. The hiring of Sabia, an anglophone from Ontario who previously ran BCE Inc., signalled a change in the weather, said Michel Magnan, an expert in corporate governance at Montreal’s Concordia University. The Caisse’s portfolio took a beating during the financial crisis, a wakeup call for a political class that is reliant on an aging population for votes. In 2015, the Caisse’s governing legislation was amended to state clearly that it operates with “full independence.”
And, as far as anyone can tell, it does.
“They are really, really competitive,” Martin Theriault, chief executive of Eddyfi, which deploys advanced technology to inspect pipelines, airplane parts and other sensitive equipment, said in an interview. “They bring their name. The Caisse keeps everyone honest, so to speak. They bring credibility.”
It bugs some people, but data keep showing that Quebec is doing a lot of things right. Head office employment dropped 0.9 per cent in Canada between
2014 and 2018, and plunged 12 per cent in Alberta, Statistics Canada reported last month. But in Quebec, the number increased one per cent.
The Caisse makes a point of getting behind technology companies and firms that want to expand globally. Eddyfi started from zero a decade ago, and now has sales of about $300 million and employs about 1,100 people. It tripled in size in the past couple of weeks with the Caisse’s help, and it plans to keep growing by consolidating a fragmented industry.
“It’s dear to my heart to be a Quebec-based player,” Theriault said.
I’ve met Albertan entrepreneurs outside the oil-and-gas industry who lack only capital to become global players themselves. Quebec is unique, but the Caisse model is exportable, Magnan said. “History shows you just have to minimize political interference,” he said.
Tricky, but, with strong governance, possible.