Double Blind

Earlier I was worried that the Canadian Pension Plan (which doesn’t include contributions from Quebec, and thus doesn’t pay people that worked inside Quebec) was going to post huge investment losses in the last quarter of 2008. Fortunately, they did not (6.7% loss).

However, the Quebec Pension Plan (of which is partially managed by the Caisse de dépôt et placement du Québec) posted a whopping 25% loss on investments which can be described as nothing other than disastrous. The absolute amount was about $40 billion.

They lost about $8.9 billion trying to hedge currencies – the Canadian dollar dropped and thus had they not hedged, they would have been able to realize much higher gains. They also took a $4 billion mark-to-market hit on asset-backed commercial paper (ABCP), which has lost all liquidity in the marketplace, and thus they will have to pay a liquidity premium to convert to a more conventional income-bearing investment. They subsequently converted the foreign ABCP in January.

The most funny line in their press release is rationalizing this hit:

Without the ABCP factor, the Caisse’s five-return year would be 4.1%, which is above the median of its peers, namely 3.6%, and close to the first-quartile threshold of 4.3%. Over the past 15 years, the Caisse has had a second-quartile five-year return only twice, in 1992 and 1999. As a result of ABCP, the five-year return is instead 3.1%, or 0.5% below the median of its peers.

This is kind of like saying “If I didn’t invest in Enron, Worldcom, Nortel, Bear Stearns, and Lehman Brothers, we would have performed better than our peers.”

Sounds like the pension fund managers need to be fired. I should really get into the business.

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