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Canada`s largest money manager to Boost Hedge Fund Investments

Date: Thursday, February 19, 2004

Caisse de Depot et Placement du Quebec, Canada's largest money manager, plans to add to its investments in hedge funds and private equity in coming years to boost returns, reducing its stock and bond holdings, Chief Executive Henri-Paul Rousseau said. Historically, a balanced pension-fund portfolio was composed of stocks and bonds, but things have changed,'' Rousseau said in an interview at the Caisse's new building in Montreal. ``Endowment funds and large pension-fund managers have realized that a portfolio of this kind wasn't diversified enough.'' Canadian money managers such as the Canada Pension Plan Investment Board and the Ontario Teachers' Pension Plan have been boosting their holdings of assets such as private equity because they expect stocks to lag other types of investments in the years ahead. Real estate, private equity, hedge funds, commodities and other ``non-traditional'' investments represent about 20 percent of the Caisse's total assets, Rousseau said. That's about C$24 billion ($18 billion). The proportion could climb to as much as 25 percent ``over time,'' he said. ``Non-traditional investments will play a bigger role, but this isn't something that you can do overnight,'' Rousseau said. ``These investments are less correlated to stock markets and can provide a return that can often be inferior, but more certain.'' Rising stocks accounted for 59 percent of the C$11.5 billion jump in net assets at the Caisse last year, while fixed-income securities such as bonds contributed 18 percent. The state-owned pension-fund manager, which returned 15.2 percent in 2003, has about 80 percent of its total assets of C$118.8 billion invested in stocks and bonds. Hedge funds will play a bigger part in the Caisse's future. Rousseau said the Caisse has about C$750 million invested in outside hedge funds, or less than 1 percent of total assets. ``Our hedge-fund investments will grow,'' Rousseau said. ``By how much? It will depend on the appetite of depositors, but the trend for pension funds is to go up to 2 percent, 3 percent or 4 percent'' of assets, he said. Rousseau acknowledged the risks involved, but said the Caisse is ``very careful'' in selecting hedge funds, which are loosely regulated pools of capital, typically used by wealthy and institutional investors. ``Hedge funds tend to be less transparent, and that requires tighter management,'' he said. ``You need to know who you're dealing with.'' Rousseau didn't specify which hedge funds the Caisse does business with, and spokeswoman Isabelle Tremblay declined to comment.