Fiscal year ended December 31, 2007: Caisse de dépôt et placement du Québec's first decile return of 5.6% adds $7.9 billion to depositors' net assets



    MONTREAL, Feb. 21 /CNW Telbec/ - The Caisse de dépôt et placement du
Québec stated today that the weighted average return on depositors' funds for
the fiscal year ended December 31, 2007 was 5.6%. This is a first decile
return within the comparative universe of Canada's major pension funds. It
represents an added $7.9 billion to the depositors' net assets.
    For the 3-year period ended December 31, 2007, the Caisse posted an
annual return of 11.5%, which is in the first decile of the comparative
universe. For the five-year period ended December 31, 2007, the annual return
was 12.4%, and lies within the top 5% of the comparative universe.

    
    Table 1
    WEIGHTED AVERAGE RETURN ON DEPOSITORS' FUNDS
    (as at December 31, 2007)

    -------------------------------------------------------------------------
           Period               Annual Return         Percentile Ranking(1)
    -------------------------------------------------------------------------
            2007                     5.6%                  First decile
          3 years                   11.5%                  First decile
          5 years                   12.4%              First 5 percentiles
    -------------------------------------------------------------------------
    (1) According to RBC Dexia Investor Services - Funds of $1 billion and
        more

    The 5.6% return includes unrealized depreciation (provision) of
$1.9 billion incidental to the liquidity crisis that occurred in the Canadian
asset-backed commercial paper (ABCP) market in August 2007. This provision,
established according to Canadian Institute of Chartered Accountants (CICA)
guidelines, had a downward effect of 1.3% on the Caisse's overall performance
in 2007. For most of the amount ($1.4 billion), the probability of recovery at
maturity is deemed high, in particular because it is not related to the U.S.
subprime mortgage crisis.

    GROWTH OF DEPOSITORS' NET ASSETS

    Depositors' net assets grew from $143.5 billion as at December 31, 2006 to
$155.4 billion as at December 31, 2007. The $11.9 billion increase is made up
of the result of investment operations, totalling $7.9 billion, and net
deposits of $4.0 billion.
    Over the last five years, depositors' net assets doubled, growing from
$77.7 billion to $155.4 billion. This increase is due to the results of
investment operations (81.3%, at $63.2 billion) and net deposits (18.7%, at
$14.5 billion).
    In addition, depositors' total assets, including liabilities as at
December 31, 2007, totalled $227.1 billion and the Caisse's total assets under
management, $257.7 billion.


    Table 2
    DEPOSITORS' NET ASSETS
    (as at December 31 - in $ billions)
    -------------------------------------------------------------------------
                                                   2007   Period 2003 - 2007
    -------------------------------------------------------------------------
    Net assets, beginning of period               143.5                 77.7
    Results of investment operations                7.9                 63.2
    Depositors' net deposits                        4.0                 14.5
                                                -----------------------------
    Change in net assets                           11.9                 77.7
                                                -----------------------------
    Net assets, end of period                     155.4                155.4


    2007 HIGHLIGHTS OF OVERALL RETURN

    The 2007 return of 5.6% was drawn both upward and downward by different
factors.

    The key factors that had a positive effect were:

    1. The foreign exchange risk hedging policy that contributed an estimated
       return in 2007 of about $3.5 billion;
    2. The sizeable weight assumed by non traditional investments in the
       depositors' portfolios, mainly the specialized Private Equity,
       Investments and Infrastructures, Real Estate, and Hedge Funds
       portfolios, and the high return on these investments in 2007. The
       weighting of these assets grew from 19.6% to 35.1% between 2003 and
       2007;
    3. Favourable stock markets in Canada and emerging countries, with a 9.8%
       return for the S&P/TSX and an 18.2% for the MSCI EM (unhedged);
    4. The overall value added of 72 basis points provided by managers,
       slightly over $1.0 billion, before the effect of the ABCP investment
       provision.

    The key factors that influenced performance negatively in 2007 were:

    1. The world credit crisis that sparked a sudden upsurge in credit
       spreads;
    2. Generally less hospitable U.S. and foreign stock markets in 2007; in
       the United States, the S&P 500 index (hedged) posted a low return of
       3.8%; the foreign market MSCI EAFE (hedged) showed a similar return
       of 3.7%;
    3. The liquidity crisis hitting the Canadian non-bank ABCP market;

    "In short, foreign exchange risk hedging, the increased weight of non
traditional assets of the last few years, solid Canadian stock market
performance and our managers' value added are the reasons the Caisse is
posting a first decile return in 2007-in spite of the global credit crisis and
the ABCP investment provision," explained Caisse President and Chief Executive
Officer, Henri-Paul Rousseau.
    Finally, the Caisse cashed in significant realized gains in 2007 from the
sale of investments, in anticipation of less hospitable economic times in
certain sectors and regions of the world, and positioned itself for future
investment opportunities.

    VALUE ADDED

    In 2007, total Caisse manager overall value added relative to the
depositors' overall portfolio benchmark was 72 basis points (bp) before ABCP
investment provision and -57 basis points after provision.
    The Caisse's value added, after provision, for the 3 and 5 year periods
ended December 31, 2007 remains in line with depositors' targets at 99 and
82 bp respectively.
    In 2007, the main specialized portfolios that contributed to value added
relative to benchmarks in 2007 were the Private Equity portfolio (+1,240 bp),
the Hedge Funds portfolio (+412 bp), the Canadian Equity portfolio (+281 bp),
and the Investments and Infrastructure portfolio (+197 bp).
    The main specialized portfolios that underperformed their benchmarks were
primarily the hedged and unhedged U.S. Equity portfolios (-311 and -275 bp),
the Real Estate portfolio (-409 bp), with an absolute return remaining high at
20.3%, and the Real Estate Debt portfolio (-258 bp).

    UNREALIZED DEPRECIATION INCIDENTAL TO THE CANADIAN ABCP MARKET LIQUIDITY
    CRISIS

    The total provision of $1.9 billion recorded as at December 31, 2007 on
the ABCP investments represents 15% of their initial value of $12.6 billion.
The initial value of $13.2 billion made public by the Caisse in November 2007
has been adjusted to $12.6 billion to factor in the effect of restructuring
Skeena Trust, which took place on December 20, 2007.
    The provision has three components.
    The first component is a contingency provision of $1.4 billion with a
probable recovery at maturity deemed high due considering the quality of
underlying assets, expected return on investments and progress on the Canadian
market restructuring project.
    The second component is a $469 million provision on high-risk assets (U.S.
subprime mortgages) with a face value of $782 million. The probability of
recovery at maturity for this provision is deemed low.
    The third component is an amount of $30 million for restructuring fees on
these investments.

    OPERATING EXPENSES, EXTERNAL MANAGEMENT FEES AND OPERATIONAL EFFICIENCY

    For fiscal 2007, operating expenses totalled $261 million, an increase of
$34 million over 2006. External management fees reached $69 million, up
$15 million compared with 2006. These increases were mainly related to the
growth of total assets under management during the last years. Expressed in
cents per $100 of average net assets, operating expenses and external
management fees combined were 21.7 cents in 2007 versus 21.6 cents in 2006 and
22.6 cents in 2005.

    AUDIT OF THE COMBINED FINANCIAL STATEMENTS

    In accordance with the law, the Auditor General of Québec audited the
Caisse's books in 2007 and his report accompanies the combined financial
statements. Each year, the Auditor General of Québec, to the extent that he
deems appropriate, conducts the financial audit and ensures that the Caisse's
operations comply with laws, regulations, policies and guidelines, and with
the systems and procedures set up to control and protect its assets.

    ABOUT THE CAISSE DE DEPOT ET PLACEMENT DU QUEBEC

    The Caisse de dépôt et placement du Québec is a financial institution that
manages funds primarily for public and private pension and insurance plans. As
at December 31, 2007, it held $155.4 billion of net assets. One of the leading
institutional fund managers in Canada, the Caisse invests in the main
financial markets as well as in private equity and real estate. For more
information: www.lacaisse.com.


    TABLE 3

    RETURN BY INVESTMENT GROUP
    COMPARED WITH BENCHMARK INDICES
    (for the period ended December 31, 2007 - as a percent)

    -------------------------------------------------------------------------
    Investment group         Market                                    Value
    Specialized portfolios   index            Return       Index       added
                                                   %           %           %
    -------------------------------------------------------------------------
    Private Equity                              13.6         5.1         8.5
    Investments and          Investments and
     Infrastructures          Infrastructures    8.8         6.8         2.0
    Private Equity           Private Equity     16.2         3.8        12.4

    Equity Markets                               5.6         5.0         0.7
    Canadian Equity          S&P/TSX capped     12.6         9.8         2.8
    U.S. Equity (hedged)     S&P 500 hedged      0.7         3.8        -3.1
    U.S. Equity (unhedged)   S&P 500 unhedged  -13.3       -10.5        -2.8
    Foreign Equity (hedged)  MSCI - EAFE hedged  4.3         3.7         0.6
    Foreign Equity           MSCI -
     (unhedged)               EAFE unhedged     -5.1        -5.7         0.6
    Emerging Markets Equity  MSCI -
                              EM unhedged       17.0        18.2        -1.2
    Québec International     Québec
                              International      4.8         4.6         0.2

    Hedge Funds                                  5.5         4.6         0.9
    Hedge Funds              CS/Tremont Hedge
                              Fund Index
                              modified           9.5         5.4         4.1

    Commodities              Commodity
                              Financial
                              Instruments       -0.5         3.8        -4.3

    Fixed Income and
     Currency                                    3.9         3.8         0.1
    Short Term Investments   SC 91-day Canadian
                              T-Bill             4.6         4.4         0.1
    Real Return Bonds        SC Real Return
                              Bond               1.5         1.6        -0.1
    Bonds                    SC Universe Bond    3.8         3.7         0.1
    Long Term Bonds          SC Long Term
                              Government Bond    4.7         4.4         0.3

    Asset allocation and
     Other (in $ millions)                     -$35M           -       -$35M

    Real Estate                                 12.0        15.5        -3.4
    Real Estate Debt         CMP - Real Estate
                              Debt               0.9         3.5        -2.6
    Real Estate              Aon - Real Estate  20.3        24.4        -4.1

    Weighted average return
     on depositors' funds
     (before unrealized
     depreciation on ABCP)                       6.9         6.2         0.7

    Unrealized depreciation
     on third-party ABCP
     in restructuring                           -1.3           -        -1.3

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average return
     on depositors' funds                        5.6         6.2        -0.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Note: Differences due to rounding out


    Table 4
    INVESTMENTS IN THIRD-PARTY ABCP IN RESTRUCTURING
    (estimated fair value as at December 31, 2007 - in $ millions)

    -------------------------------------------------------------------------
                                                Provision
                                          -----------------------
                                                                  Estimated\
                              Face value           $           %  fair value
    -------------------------------------------------------------------------
    Synthetic and traditional
     assets                       11,825      (1,398)      (11.8)     10,427
    High-risk assets                 782        (469)      (60.0)        313
    Restructuring fees                 -         (30)
                             ------------------------------------------------
                                  12,607      (1,897)      (15.0)     10,740

    (*)Source: Caisse de dépôt et placement du Québec


    Table 5
    OPERATING EXPENSES AND EXTERNAL MANAGEMENT FEES
    (as at December 31 - in $ millions)
    -------------------------------------------------------------------------
                                                2007        2006        2005
    -------------------------------------------------------------------------
    Operating expenses                           261         227         216
    -------------------------------------------------------------------------
    External management fees                      69          54          36
    -------------------------------------------------------------------------
    Total operating expenses and external
     management fees                             330         281         252
    -------------------------------------------------------------------------
    Prorated to average net assets,
     i.e. in cents per $100 of
     average net assets                   21.7 cents  21.6 cents  22.6 cents
    -------------------------------------------------------------------------
    




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