Video: Caisse CEO Talks Pension’s Transit Partnership

Here’s an interview with Michael Sabia, president and CEO of Caisse de dépôt et placement du Québec.

Last month, the pension fund struck a deal to take over public transportation projects, including a light rail system and a bridge.

Here, Sabia talks about the partnership and how it came about.

Kolivakis: Can the Caisse Make Money on Public Transit?

public transit

Pension360 has covered the fascinating partnership between Caisse de dépôt et placement du Québec and the province’s public transit system.

But some observers – including Moody’s – have doubts that the partnership will prove fruitful for Caisse.

Over at Pension Pulse, Leo Kolivakis has thrown his expertise into the ring. In a post on Monday, he comments on the concerns over the partnership, and what Caisse needs to do to make this venture a successful one.

The post is printed below.


By Leo Kolivakis, Pension Pulse

A month ago, I covered the announcement of the Caisse handling Quebec’s infrastructure needs and stressed the primacy of good governance.

But now critics are coming out to question the economic viability of this decision as well as the process, stressing a private-public partnership is more efficient. I asked a friend of mine who knows infrastructure and he told me he doesn’t know much about light rail transit. He also somewhat cynically quipped: “Who uses quotes from geography professors?”.

I’m a little more open-minded than my friend as I trust geography professors more than economists when it comes to urban planning. Having said this, I question whether a public-private partnership, especially here in scandal-ridden Quebec, would be more “efficient” and in the best interest of Quebec’s taxpayers.

As far as the Caisse’s infrastructure group, they have made money in the past on transit but this is a different beast altogether. They will be playing a much more direct and central role in developing and overseeing these projects from start to finish, as well as managing fares to make them economically viable.

Macky Tall, a senior vice-president in charge of the Caisse’s infrastructure portfolio, raises excellent points on leveraging the Caisse’s real estate expertise to help fund these projects. More importantly, he’s absolutely right, new model is better for the Caisse than a traditional public-private agreement because it will retain ownership indefinitely, and can spread out its return over a longer period, not having to recoup its initial investment in the first 35 years.

Having said this, there are legitimate concerns about how this project will be handled and how the Caisse can fulfill its dual mandate of achieving the actuarial returns its clients need while it develops Quebec’s economy. If something goes wrong in a major multibillion infrastructure project, this can have a severe impact on the Caisse’s long-term results.

But there is no question that Montreal desperately needs to develop its infrastructure. Peter Hadekel of the Montreal Gazette wrote a comment a couple of weeks ago, Stagnation city: Exploring Montreal’s economic decline, where he stressed among other things the need to focus on infrastructure projects to bolster Montreal’s stagnating economy.

I’m highly skeptical of Montreal’s economic future, especially now that Canada’s crisis is just beginning. On a relative basis the city will do better than Calgary or Edmonton, which will bear the brunt of the economic weakness that comes with the plunge in oil prices. But this city has been stagnating for a very long time and never experienced the boom that Canada’s other major cities experienced.

Moreover, the primary factor behind Montreal’s stagnation remains a political climate that hinders outside investments and forced many anglophones, allophones and even francophones in Quebec to move elsewhere in search of better opportunities. My biggest concern is institutional racism pervading many of Quebec’s government and quasi-government organizations as well as large private corporations (let’s not kid each other, diversity in the workplace is not Quebec’s strong suit, not that the rest of Canada is any better).

But let’s leave the politics aside and get back to the Caisse and building these light rail transit projects. One of the key elements of good pension governance is communication. The Caisse needs to be open, transparent and very clear on the terms and costs at every stage of these projects if they intend to have the public’s support because if something goes wrong, it will be another fiasco that will make the ABCP scandal the media is covering up look like a walk in the park.


Photo by  Claire Brownlow via Flickr CC License

Quebec Pension Part of Investor Group Buying PetSmart


Caisse de Depot et Placement du Quebec, the entity that manages Quebec’s public pension plans, is part of the consortium of investors that agreed to buy PetSmart over the weekend.

Details from the New York Times:

PetSmart agreed on Sunday to sell itself to a group led by the investment firm BC Partners for about $8.7 billion, months after the retailer came under pressure from two hedge funds.


PetSmart has long been seen as a good target for private equity firms, given its relatively strong cash flow and low debt. In a leveraged buyout, private equity firms generally finance the majority of the purchase price with borrowed money.

PetSmart operates more than 1,300 pet stores in the United States, Canada and Puerto Rico.

“The question is, ‘Why haven’t there been more people interested in PetSmart?’” said Raymond Svider, a managing partner of BC Partners. “The category of pet products has been growing in the U.S. and abroad consistently for a number of years.”

The retailer disclosed in August that it was exploring a sale after Jana Partners, the big activist investor, emerged as a major shareholder. The pet supply company had already been weighing its strategic options as its sales had begun to slow.

By that time, Jana and another firm, Longview Asset Management, had begun agitating for a sale of the company. Jana now has a stake of 9.75 percent.

The monthslong auction of PetSmart eventually drew the interest of some of the biggest private equity firms, including Apollo Global Management, Kohlberg Kravis Roberts and Clayton Dubilier & Rice.

Ultimately, BC Partners, a European-American firm with about $15 billion under management, and some of its own investors emerged as the winner. (Longview, which owns a stake of roughly 9 percent in PetSmart, will roll over about a third of its holdings into the newly private retailer, cashing out the rest of its shares.)

Under the deal’s terms, the consortium will pay about $83 a share in cash, about 6.8 percent higher than PetSmart’s closing price on Friday and about 39 percent higher than the closing price on July 2, the day before Jana emerged as a shareholder.

Caisse de Depot et Placement du Quebec manages $214 billion in assets.


Photo by  Mike Mozart via Flickr CC License

Quebec Stays Course on Pension Reforms In Face of Mounting Protests

Canada blank map

Protestors are flooding Montréal streets in opposition of Quebec’s Bill 3, a measure that would freeze COLAs for retirees and increase employee contributions.

But the government isn’t willing to reverse course on their plan to lower the costs of the province’s pension system. Bill 3 is expected to pass within a month. From the Montreal Gazette:

The provincial government won’t budge on the proposed reform of municipal pension plans, Municipal Affairs Minister Pierre Moreau said Tuesday, three days after the largest protest yet against Bill 3 was held in Montreal.

“We are not in a bargaining situation,” he said. “The government and experts have said, in a report that was welcomed by everyone in the National Assembly, that there was an urgency to act to save those pensions. That’s what we’ve done.”

The minister said the government is done consulting interested parties, including union leaders, retiree representatives and the Union des municipalités du Québec, and has moved on to drafting the bill. Union leaders called the hearings a “farce.”


The government won’t necessarily wait for actuarial reports on the health of the pension plans to be published next month before passing the bill, Moreau added.

“Having the numbers doesn’t change anything,” he said. “It doesn’t change anything for the pensions that are totally under-financed.

“For example, even if I don’t know your weight, if you’re overweight I know you’re in precarious health.”

Bill 3 is part of a larger austerity plan to cut government costs and pay down a deficit of nearly $4 billion.