The Caisse posts 10% return in 2009 - Growth of investment results to $11.8
billion in 2009

MONTREAL, Feb. 25 /CNW Telbec/ - The Caisse de dépôt et placement du Québec announced that its weighted average return on depositor funds was 10.04% for the year ended December 31, 2009. This result was fully achieved in the second half of the year. Caisse net assets climbed to $131.6 billion in 2009 from $120.1 billion a year ago.

The increase in Caisse's net assets is due to the performance of its equity, fixed income, and private equity portfolios and reflects an important unrealized decrease in value of the Real Estate group's investments.

For 2009, the Caisse underperformed its benchmark index return of 14.1% by 4.1%. Half of the return differential comes from the Real Estate Debt portfolio. The other half results essentially from the underweighting of equity markets at the beginning of 2009 and the performance of the private equity portfolio compared to its index.

In the second half of the year, the Caisse posted a return of 10.4%, 1.4% above its benchmark index, which returned 9.0%. During the first half, the Caisse recorded a neutral performance (-0.3%), compared to 4.7% for its benchmark index.

    
                         Comparative Performance (%)
                         Caisse vs. Benchmark Index
    

A chart is available at http://www.lacaisse.com/en/nouvelles-medias/Documents/Communique_RF2009_EN.pdf

"2009 was a year of transition for the Caisse. We rebalanced our portfolio investments and rebuilt our equity positions. We also re-evaluated our real estate portfolios and repositioned our operations in this sector that has been pummelled by strongly declining international markets. Ultimately, we are building solid foundations for the future. But this is just the beginning. Although returns were up in the second half of the year and significant progress was made, we still have more work to do," said Mr. Michael Sabia, President and Chief Executive Officer of the Caisse.

BETTER FINANCIALS

Over the past year, the Caisse strengthened its financial position, reducing its liabilities by $27.7 billion, including $14.5 billion in derivatives. Liabilities fell from $66.8 billion to $39.1 billion, a 41.5% decrease.

Under a new refinancing program, the Caisse recently replaced certain short-term debt with $7.2 billion in longer-term debt, better matching the duration of its financing sources and uses.

In 2009, the Caisse also reduced its operating expenses and external management fees by $43 million or 13.7% to $271 million in 2009 from $314 million a year ago.

SECTOR RESULTS

During the past year, 10 out of 17 Caisse portfolios outperformed their benchmark indexes. In addition, 15 of these portfolios posted positive returns in 2009. Equity Markets, where the Caisse reinvested $9.6 billion in 2009, recorded a 31.4% return. The Equity Markets group outperformed benchmark indexes by 0.6%. The total value of the Equity Markets portfolios increased by approximately $20 billion in 2009.

In Fixed income, the Caisse posted a 5.8% return. The four Fixed Income portfolios outperformed their benchmark indexes, resulting in a 0.9% return above the benchmark index overall. In 2009, conditions in the bond market gradually returned to near-normal. The Fixed Income group adopted a well-balanced approach to take advantage of market fluctuations in the Canada, provincial and corporate bond sectors.

The Private Equity group, which manages the Investments and Infrastructures and Private Equity portfolios, posted a 17.5% return in 2009, underperforming its benchmark index by 8.1%. The Investments and Infrastructures portfolio saw a 33.6% return, benefiting from a particularly favourable environment in the second half of the year. During this period, the portfolio recorded increases in value on both the debt and equity financing fronts. These increases in value are due mainly to a $1.2 billion upward re-evaluation of investments to fair market value (mark-to-market), as at December 31, 2009.

The Private Equity portfolio posted a 10.8% return against a backdrop of anemic deal flow throughout 2009 and increasing IPO activity in the fourth quarter.

The Real Estate group continued to face challenging international market conditions, resulting in negative returns. These results include a $4.8 billion unrealized decrease in value. Overall, the group saw a -15.8% return or -$4.1 billion in 2009, underperforming its benchmark index by 10%.

The Real Estate portfolio saw a -12.7% return, outperforming its benchmark index by 2.7%. In the first half of the year, this portfolio was hit hard by international and, to a lesser extent, Canadian market turmoil. Overall, the portfolio experienced a slightly positive second half, a sign of stabilizing market conditions.

Due to a weak U.S. market, the Real Estate Debt portfolio saw a -20.3% return, compared to 8.5% for its benchmark index. In Canada, portfolio performance was clearly better. In the future, the Caisse aims to favour the Canadian market over higher-risk exposure. Specifically, the Caisse ceased participation in subordinated debt and structured product originated by third parties outside Canada, which accounted for nearly 90% of the portfolio's loss provisions, as at December 31, 2009.

In addition, improving credit conditions led to $479 million in ABCP provision reversals, as at December 31, 2009 (renamed asset-backed term notes - ABTM). For 2009, the ABCP provision reversal combined with related costs and interests total $513 million. The Caisse has formed a team of experts dedicated solely to managing this portfolio and its risk profile.

"In 2009, we simplified and improved the way we work. We now have greater operational and financial flexibility to execute investment strategies. In 2010, we plan to vigorously pursue our five strategic priorities, making our depositors - our clients - our everyday focus. We want to lay the cornerstone for sustainable, long-term returns, that meet the needs of our depositors," added Mr. Sabia.

ABOUT THE CAISSE DE DÉPÔT ET PLACEMENT DU QUÉBEC

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, 2009, it held $131.6 billion in net assets. As one of Canada's leading institutional fund managers, the Caisse invests in major financial markets, private equity and real estate. For more information: www.lacaisse.com.

    
    Returns(1)
    (for the period ended December 31, 2009)

    --------------------------------- --------- -----------------------------
                         Net assets        Net
                              as at     invest
                            Dec. 31,     -ment
    Specialized                2009    results    Return     Index    Spread
    portfolio                    $M         $M         %         %         %
    --------------------------------- --------- -----------------------------
    Short Term
     Investments               2,715        41       1.1       0.6       0.5
    --------------------------------- --------- -----------------------------
    Real Return Bonds            653        95      17.1      14.5       2.6
    --------------------------------- --------- -----------------------------
    Bonds                     37,645     2,494       6.4       5.4       1.0
    --------------------------------- --------- -----------------------------
    Long Term Bonds            3,102        63       2.1       1.2       0.9
    --------------------------------- --------- -----------------------------
    Fixed Income              44,115     2,692       5.8       4.8       0.9
    --------------------------------- --------- -----------------------------

    --------------------------------- --------- -----------------------------
    Canadian Equity           17,050     4,567      36.6      35.1       1.6
    --------------------------------- --------- -----------------------------
    U.S. Equity (hedged)         656       125      28.7      24.1       4.6
    --------------------------------- --------- -----------------------------
    U.S. Equity (unhedged)     4,091       405      11.3       7.4       3.9
    --------------------------------- --------- -----------------------------
    Foreign Equity (hedged)    2,086       272      22.4      23.5      -1.1
    --------------------------------- --------- -----------------------------
    Foreign Equity (unhedged)  4,718       410      10.9      11.9      -1.0
    --------------------------------- --------- -----------------------------
    Emerging Markets Equity    4,943     1,678      50.9      51.6      -0.7
    --------------------------------- --------- -----------------------------
    Québec International      12,828     2,968      26.9      27.7      -0.9
    --------------------------------- --------- -----------------------------
    Equity Markets            46,373    10,425      31.4      30.9       0.6
    --------------------------------- --------- -----------------------------

    Investments and
     Infrastructures           5,329     1,326      33.6      29.5       4.1
    --------------------------------- --------- -----------------------------
    Private Equity            11,256     1,082      10.8      24.0     -13.2
    --------------------------------- --------- -----------------------------
    Private Equity            16,585     2,408      17.5      25.6      -8.1
    --------------------------------- --------- -----------------------------

    Real Estate Debt           9,020    -2,311     -20.3       8.5     -28.8
    --------------------------------- --------- -----------------------------
    Real Estate               14,311    -1,800     -12.7     -15.3       2.7
    --------------------------------- --------- -----------------------------
    Real Estate               23,331    -4,111     -15.8      -5.8     -10.0
    --------------------------------- --------- -----------------------------

    Commodities                1,237        90       8.3       9.5      -1.1
    --------------------------------- --------- -----------------------------
    Hedge Funds                3,826       435      13.2      11.9       1.3
    Asset Allocation(2)          499        16       n.a.      n.a.      n.a.
    --------------------------------- --------- -----------------------------
    Total(3)                 131,588    11,752      10.0      14.1      -4.1
    --------------------------------- --------- -----------------------------
    (1) Dollar amounts are net of operating expenses.

    (2) Net investment results indicated in the financial statements for the
        specialized Asset Allocation portfolio amount to $33 million. This
        amount includes $16 million from the 2009 operations and $17 million
        from an adjustment retroactive to the opening balance of net assets.

    (3) The total includes ABCP ($5.1 billion provision) and other
        operations. For 2009, the ABCP provision reversal combined with
        related costs and interests total $513 million. In addition, net
        assets and net investment results include depositors' demand and term
        deposits.


    FIXED INCOME
    -------------------------------------------------------------------------
    

MARKET CONDITIONS

Massive intervention by monetary authorities and governments, from fall 2008 into 2009, restored market liquidity and contributed to the return of investor confidence, particularly in bond markets. This triggered a shift from risk-free investments (government securities) to higher-risk assets (corporate securities), leading to a dramatic decrease in risk premiums and a slight rise in government bond rates.

Evolution of rates in Canada in 2009

A chart is available at http://www.lacaisse.com/en/nouvelles-medias/Documents/Fact-sheet-FR2009_Fixed-Income.pdf

    
    HIGHLIGHTS

    - The overall return for the Fixed Income group was 5.8%.

    - Overall, the four specialized bond portfolios outperformed their
      benchmarks indexes by 0.9%.

    - The portfolio managers adopted a well-balanced approach to take
      advantage of market fluctuations and credit spreads, adopting an active
      management strategy in line with market developments.

    Return of specialized portfolios
    Fixed Income
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (For the fiscal year ended
     Dec. 31, 2009)                                               Percentage
    -------------------------------------------------------------------------
                                      Weight*   Return     Index    Spread
    -------------------------------------------------------------------------
    Short Term Investments                 2.1       1.1       0.6       0.5
    -------------------------------------------------------------------------
    Real Return Bonds                      0.5      17.1      14.5       2.6
    -------------------------------------------------------------------------
    Bonds                                 28.7       6.4       5.4       1.0
    -------------------------------------------------------------------------
    Long Term Bonds                        2.4       2.1       1.2       0.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    * : As a proportion of the Caisse's net assets


    SHORT TERM INVESTMENTS

    - This portfolio posted a 1.1% return, 0.5% above the DEX 91-Day T-Bill
      Index.

    REAL RETURN BONDS

    - The return on this portfolio was 17.1%, 2.6% above the DEX Real Return
      Bond Index.

    BONDS

    - This portfolio returned 6.4%, 1.0% above the DEX Universe Bond Index.

    LONG TERM BONDS

    - This portfolio saw a 2.1 % return, 0.9% above the DEX Long Term
      Government Bond Index.

    EQUITY MARKETS
    -------------------------------------------------------------------------
    

MARKET CONDITIONS

Early 2009 saw a continuation of the equity sell-off that started in fall 2008. Fuelled partly by fears of another Great Depression, it gained momentum around the world. Between January 1 and the trough of March 9, 2009, Canadian and U.S. exchanges fell, respectively 15% and 25%.

The strong, coordinated policies of governments and central banks-such as the massive injection of liquidity into the financial system and the rescue of major financial institutions-contributed to the return of investor confidence. In the spring, fears of a depression receded and investors underweight in equities contributed to a market rally. All in all, the benchmark indexes climbed between 26% and 62% in local currencies, while equity markets overall returned 30.9% in Canadian dollars.

    
    2009 Equity Market Evolution
    January 1st, 2009 = 100
    

A chart is available at http://www.lacaisse.com/en/nouvelles-medias/Documents/Fact-sheet-FR2009_Equity-Markets.pdf

    
    HIGHLIGHTS

    - The group saw an overall return of 31.4%.

    - The specialized equity portfolios as a whole outperformed their
      benchmark indexes by 0.6%. This outperformance is due to active
      internal management of Canadian and U.S. equity portfolios, which
      exceeded their added value targets.

    - The total value of the specialized equity portfolios rose 75% (or some
      $20 billion) in 2009.

    - In 2009, the Caisse invested $9.6 billion in equities to take advantage
      of the market recovery.

    Return of specialized portfolios
    Equity Markets
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (For the fiscal year ended Dec. 31, 2009)                     Percentage
    -------------------------------------------------------------------------
                                      Weight*   Return     Index    Spread
    -------------------------------------------------------------------------
    Canadian Equity                       13.0      36.6      35.1       1.6
    -------------------------------------------------------------------------
    U.S. Equity (hedged)                   0.5      28.7      24.1       4.6
    -------------------------------------------------------------------------
    U.S. Equity (unhedged)                 3.1      11.3       7.4       3.9
    -------------------------------------------------------------------------
    Foreign Equity (hedged)                1.6      22.4      23.5      (1.1)
    -------------------------------------------------------------------------
    Foreign Equity (unhedged)              3.6      10.9      11.9      (1.0)
    -------------------------------------------------------------------------
    Emerging Markets Equity                3.8      50.9      51.6      (0.7)
    -------------------------------------------------------------------------
    Québec International                   9.7      26.9      27.7      (0.9)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    * : As a proportion of the Caisse's net assets

    CANADIAN EQUITY

    - This portfolio returned 36.6%, 1.6% above the S&P/TSX Capped Index.
      Value added is mainly the result of security selection in the materials
      and consumer sectors.

    U.S. EQUITY (HEDGED)

    - This portfolio posted a 28.7% return, 4.6% above the S&P 500 Hedged
      Index. The outperformance is due to the equity market recovery and
      security selection in health care, media and telecommunications, energy
      and technology sectors.

    FOREIGN EQUITY (HEDGED)

    - The return on this portfolio was 22.4%, 1.1% below the MSCI-EAFE Hedged
      Index. External management mandates, financial sector security
      selection and an underweight in Australia, a net result of various
      strategies and different managers, detracted from performance.

    EMERGING MARKETS EQUITY

    - This portfolio recorded a 50.9% return, 0.7% below the MSCI-EM Index.
      This underperformance is due to lacklustre Chinese investments.


    PRIVATE EQUITY
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

MARKET CONDITIONS

The private equity market idled until the last quarter of 2009, which saw an increase in transactions with a return to the high-yield loan market and a slow return of IPOs. Against this backdrop, large private equity fund managers focused on improving operational efficiencies and restructuring portfolio company balance sheets.

The corporate loan market saw a substantial narrowing of interest rate spreads, significantly increasing the value of portfolio securities.

    
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    HIGHLIGHTS

    - The Private Equity group posted a 17.5% overall return. In total, the
      group's two specialized portfolios underperformed their benchmark
      indexes by 8.1%.

    - The Investments and Infrastructures and Private Equity portfolios
      showed remarkable resilience in 2009 due to asset strength and exposure
      to less economically sensitive sectors. For example, despite a very
      challenging economic climate, 25 of the largest direct investments saw
      profitability (EBITDA) remain healthy, increasing by 2% after rising 6%
      in 2008.

    - Unlike last year, the portfolios also benefited from the upward
      revaluation of investments to fair market value (mark-to-market). The
      rise in market was felt sooner in Investments and Infrastructures than
      Private Equity.


    Return of specialized portfolios
    Private Equity
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    For the fiscal year ended
     Dec. 31, 2009                                                Percentage
    -------------------------------------------------------------------------
                                      Weight*   Return     Index    Spread
    -------------------------------------------------------------------------
    Investments  and Infrastructures       4.1      33.6      29.5       4.1
    -------------------------------------------------------------------------
    Private Equity                         8.5      10.8      24.0     (13.2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    * : As a proportion of the Caisse's net assets


    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    INVESTMENTS AND INFRASTRUCTURES

    - The return on this portfolio is 33.6%, 4.1% above its benchmark index.

    - The market recovery during the second half of the year more than offset
      the first half's unrealized decrease in value. Behind the portfolio's
      healthy performance is its high concentration in less economically
      sensitive direct investments and a relatively rapid response to liquid
      markets.

    - The narrowing of credit spreads has increased the market value of the
      loan holdings, which represents more than 50% of the portfolio's gains.

    - Listed securities also profited from the market recovery.

    PRIVATE EQUITY

    - The return on this portfolio is 10.8%, 13.2% below its benchmark index.

    - This underperformance is largely due to the historic gap between
      valuations of external private equity funds--heavily weighted in the
      portfolio--and liquid markets that comprise its benchmark index.

    - The difference is particularly significant, considering the market
      rebounded only in the last quarter of the year.

    - Valuations for leveraged buyouts, a significant weight in the
      portfolio, rose on greater merger and acquisition activity, virtually
      non-existent in 2009.

    - As expected, investing in distressed loan funds was a profitable
      strategy for the portfolio.

    - Venture capital investments also saw healthy returns from favourable
      exit strategies.


    REAL ESTATE
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

MARKET CONDITIONS

In 2009, the real estate market saw weakening fundamentals, such as rising vacancy rates and shrinking investments, against a backdrop of global economic recession. This environment led to significant decreases in value, particularly in the U.S. and Europe.

Financing conditions improved throughout the year, but credit spreads remain high by real estate standards. Within this climate, there were less non-performing loans in Canada than the U.S., where credit continued to deteriorate.

Although the impact was not as severe in the second half of the year, the real estate and commercial mortgage loan markets remain fragile.

    
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    HIGHLIGHTS

    - The Real Estate group saw an overall return of -15.8%.

    - In total, the group's two specialized portfolios underperformed their
      benchmark indexes by 10%.

    - These negative results are due mainly to unrealized decreases in value
      during the first half of the year-the result of a weak real estate
      market Worldwide and certain mezzanine and subordinated loan
      strategies.

    - The two portfolios, nonetheless, experienced a slightly positive second
      half, a sign of a stabilization of markets.


    Return of specialized portfolios
    Real Estate Group
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    For the fiscal year ended
     Dec. 31, 2009                                                Percentage
    -------------------------------------------------------------------------
                                      Weight*   Return     Index    Spread
    -------------------------------------------------------------------------
    Real Estate                           10.9     (12.7)    (15.3)      2.7
    -------------------------------------------------------------------------
    Real Estate Debt                       6.9     (20.3)      8.5     (28.8)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    *: As a proportion of the Caisse's net assets


    REAL ESTATE

    - The return on this portfolio was -12.7%, 2.7% above the Aon - Real
      Estate Index. The portfolio's decreases in value are the result of
      challenging market conditions, rising capitalization rates and
      declining commercial rental rate growth. Although the portfolio was
      negatively affected by its international exposure, its Canadian and
      U.S. positions outperformed the index.

    - Cash flow from operations, before financial costs, held steady, on par
      with 2008 - illustrating the quality of properties and tenants. The
      occupancy rate remains historically high at approximately 95%.


    REAL ESTATE DEBT

    - The return on this portfolio was -20.3%, 28.8% below its benchmark
      index. This underperformance is primarily due to participation in
      third-party subordinated debt and structured products originated by
      third parties outside Canada. The Caisse ceased these activities in
      August 2009. The Canadian portion of the portfolio returned -2.0%,
      while the international portion yielded -46.5%.


    VALUATION OF INVESTMENTS
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The Caisse conducts a complete evaluation of its less liquid investments semi-annually, on June 30 and December 31. These investments represent nearly one-third of the Caisse's net assets. External appraisers and valuation committees composed of independent experts review the Caisse's investment valuations.

PRIVATE EQUITY

    
    - Investments whose fair value exceeds a pre-established materiality
      threshold are subject to independent valuation committee or external
      appraiser review.

    - Nearly 80% of the fair value of the portfolio is reviewed this way.

    REAL ESTATE

    - Chartered external appraisers certify the fair value of real estate
      assets.

    - 95% of properties are valuated this way.
    

MARK-TO-MARKET

What does "mark-to-market" mean?

It is the valuation of an investment at fair value--the price obtained from its sale on the market at a given date, under normal competitive conditions.

The Caisse and fair value investment valuation (mark-to-market)

Under today's Canadian accounting rules, the Caisse must set the fair value of its investments based on the assumption that they will be available for sale upon preparing its financial statements.

Private equity and real estate investments, with a long-term holding horizon, are no exception to this rule.

UNREALIZED DECREASE IN VALUE

What is an unrealized decrease in value?

It is a decline in the value of an asset relative to its acquisition cost or previous valuation. This decline stays unrealized as long as the asset remains in the owner's possession. This is what's called a "paper loss."

As long as the asset is unsold, its owner does not incur any actual financial loss. If the value of the asset increases while it is still in the owner's possession, the unrealized decrease in value could be offset, in part or in full, leaving room for profit.

For example, a homeowner who paid $100,000 a few years ago for his house, appraised at $250,000 as at December 31, 2008, must have his property assessed again at December 31, 2009. He learns that his house, at that date, is worth no more than $200,000. Compared to the appraisal as at December 31, 2008, fair value represents a $50,000 or 20% decline, but still represents a $100,000 increase in value compared to the price he paid initially.

However, if the owner does not sell his house immediately, this "paper loss" could disappear with a real estate market recovery. In the long run, the value of the house could even continue to appreciate.

What are the 2009 unrealized decreases in value for less liquid investments?

By year-end, some markets benefited from improved liquidity, leading to increases in fair value. In 2009, the illiquid specialized portfolios saw the following increases (decreases) in value:

    
    Unrealized Increases (Decreases) in Specialized Portfolio Values

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    $ billions                                           2009
    -------------------------------------------------------------------------
                                 1st Half Year  2nd Half Year          Total
    -------------------------------------------------------------------------
    Real Estate                           (1.8)          (0.6)          (2.4)
    -------------------------------------------------------------------------
    Real Estate Debt                      (2.2)          (0.3)          (2.5)
    -------------------------------------------------------------------------
    Total Real Estate                     (4.0)          (0.8)          (4.8)
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Private Equity
    Investments and Infrastructures       (1.3)           2.5            1.2
    -------------------------------------------------------------------------
    Asset Backed Commercial Paper*      (0.4)           0.9            0.5
    -------------------------------------------------------------------------
    Total                                 (5.7)           2.5           (3.2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Note: Table data includes increases and decreases in the values of
          conventional assets and liabilities and derivatives in each
          portfolio.

    * Now called ABTM (Asset-Backed Term Notes).
    

SOURCE Caisse de dépôt et placement du Québec

For further information: For further information: Maxime Chagnon, (514) 847-5493


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