Caisse Won't Cut Hedge-Fund Holdings After Amaranth, Chief Says

Date: Friday, September 22, 2006
Author: Frederic Tomesco, Bloomberg.com

Sept. 22 (Bloomberg) -- Caisse de Depot et Placement du Quebec, a Canadian pension fund that invested with Amaranth Advisors LLC, doesn't plan to cut its holdings in hedge funds, the chief executive officer said.

``We don't need to reduce our exposure to hedge funds,'' Henri-Paul Rousseau told reporters in Montreal today after a speech to the French Chamber of Commerce. ``We are satisfied with the percentage we have. We have a very diversified portfolio.''

As of Dec. 31, the Caisse had about C$3.9 billion ($3.5 billion) in hedge funds among total assets of C$122.2 billion. The figure includes C$77.3 million invested with a unit of Amaranth, which lost $6 billion in a month because of bad bets on natural gas prices. The Caisse, Canada's biggest pension fund manager, won't say if it still holds the Amaranth funds.

To meet its annual return target of 7 percent, the Caisse is investing in hedge funds, real estate and other ``non- traditional'' assets because it expects them to outperform stocks and bonds. Over the next 10 years, Rousseau said the Montreal-based Caisse expects to earn 8.8 percent annually on those non-traditional investments, compared with 4.6 percent for bonds and 8.4 percent for stocks.

The Amaranth meltdown probably will lead other hedge funds to manage risks better, Rousseau said.

``When there are events in the market, it generally brings discipline,'' he said. ``I'm convinced that people in the industry don't want over-regulation, and I would think they will start policing themselves very quickly.''

Regulation

Rousseau, 58, also said hedge-fund investors such as pension funds don't need additional regulatory protection.

``Hedge funds are an institutional sector,'' he said. ``It's necessary to have regulations that govern funds sold to individuals, and most countries have them. When you talk about hedge funds, institutions should be responsible for their own activities.''

Hedge funds are private pools of capital that allow managers to participate substantially in the gains on investments made on behalf of clients. They typically levy annual management fees of 2 percent of assets and pocket 20 percent or more of the funds' gains.

The Ontario Teachers' Pension Plan, the country's No. 3 fund, had a ``small exposure'' to Amaranth until it sold the funds this summer, CEO Claude Lamoureux told Report on Business Television yesterday.

To contact the reporter for this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net .