File photo of Caisse CEO Michael Sabia.Mario Beauregard
The largest pension fund manager in the country is increasingly looking for strong businesses to invest in, rather than relying on opportunistic bets on certain asset classes, says Michael Sabia, chief executive officer of Caisse de dépôt et placement du Québec.
"Real performance is going to come from being highly selective in the types of assets you invest in," Mr. Sabia said at the Bloomberg Canada Economic Summit in Toronto on Tuesday.
Montreal-based Caisse is expanding its research abilities by adding experts such as engineers to a team of 27 could nearly double in size in the next two years. "Success in our business doesn't come from managing expenses," Mr. Sabia said. Instead it comes from having the right people, paying them well and letting them dig "very deep on the assets where you're taking significant positions."
While those experts look for businesses in which to invest, Mr. Sabia said the Caisse is significantly reducing the weight of fixed income in its portfolio.
In contrast, he sees less risk and higher returns in high-quality, large multinationals with dividends and strong balance sheets. He plans to create a $20-billion portfolio to invest in 50 to 70 companies such as YUM Brands Inc., for its emerging markets exposure, and Canadian National Railway Co., as a long-term play on the Canadian economy.
"That's one example of being selective and choosing just the companies you want to be in – not under-weighting or over-weighting everybody in the index," Mr. Sabia said. "It's a big change for us."
The Caisse has a dual mandate different from other other large pension funds – it seeks not only to deliver long-term returns, but also to contribute to Quebec's economic development. In 2012, the pension fund manager reported a 9.6 per cent return on investments, helped by its real estate and equity investments. Mr. Sabia took over as leader in 2009 after leaving the top job at BCE Inc. At the time, the Caisse's assets had just lost nearly one-quarter of their value due to losses stemming from the economic crisis. The Caisse recovered from that loss before the end of 2011.
To be clear, Mr. Sabia isn't saying that paying attention to asset classes is unimportant, just that it shouldn't be an investor's only focus. For example, energy investments face difficult macroeconomic headwinds with natural-gas prices low and Canadian oil prices volatile, and teh Caisse is keeping an eye on that. But Mr. Sabia said he still sees opportunity in North American energy infrastructure and pipelines, rather than investing further in producers.
(Jacqueline Nelson is a Globe and Mail Financial Services Reporter.)
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