The depositors of the Caisse Questions and answers
P_1 The Caisse de dépôt et placement du Québec serves its depositors, namely Québec s public and private pension and insurance plans. The Caisse s undertaking to them is to invest and manage their funds in such a way as to obtain a return consistent with their objectives and risk tolerance. The Caisse had 25 depositors as at December 31, 2007.
P_2 1. Who are the Caisse s depositors and whom do they represent? Most of the Caisse s depositors are public and private Québec pension and insurance plans. Many are social security plans that provide pension or insurance benefits, such as the CSST or the SAAQ. Through these plans, the overwhelming majority of Quebecers are concerned by the Caisse s operations. It is important to distinguish between a participant and a depositor. A participant is an individual who is eligible for a group pension or insurance plan. When such a plan entrusts the management of its assets to the Caisse, it becomes a depositor. In practice, the depositors requirements and undertakings to their participants determine the investment policies that the Caisse is given a mandate to apply. The Caisse s seven main depositors represent more than 97% of depositors net assets.
P_3 The Caisse s seven main depositors Depositor Type of plan Description Government and Public Employees retirement Plan (RREGOP) Pension plan RREGOP consists primarily of contributions by employees who work in Québec s health and social services sector, education system and public sector. The plan is administered by the Commission administrative des régimes de retraite et d assurances (CARRA). Fonds du Régime de rentes du Québec Pension plan The fund contributes to Quebecers income security, notably by providing for payment of a retirement pension. This mandatory plan is administered by the Régie des rentes du Québec (RRQ), and the contributions to the fund are made by all employers and employees. Fonds d amortissement des régimes de retraite (FARR) Pension plan FARR provides for payment of retirement benefits that are the responsibility of the government, according to the provisions of the retirement plans for the public and parapublic sectors. The fund is financed by the Québec government and administered by the Ministère des Finances. Supplemental Pension Plan for Employees of the Québec Construction Industry Pension plan The plan is administered by the Commission de la construction du Québec (CCQ). The contributions to the plan are paid by construction industry employers and employees. Health and Work Safety Fund Insurance plan The fund mainly compensates workers who have work-related accidents and contributes to their rehabilitation. The fund is administered by the Commission de la santé et de la sécurité du travail (CSST) and financed by contributions from Québec employers. Fonds d assurance automobile du Québec Insurance plan The fund compensates victims of vehicular accidents and promotes traffic safety. It is financed mainly by fees collected by the Société de l assurance automobile du Québec (SAAQ) for driver s licences and vehicle registration. Pension Plan for Management (RRPE) Pension plan The RRPE consists of contributions by management employees in the public and parapublic sectors. The plan is administered by CARRA.
P_4 2. Why do the depositors deal with the Caisse rather than another institutional fund manager? Twenty of the 25 depositors are obliged by law to have the Caisse invest the funds they collect from their contributors. This arrangement offers the considerable advantage of critical mass, which could more simply be called strength in numbers. For that reason, several depositors that are not obliged to deal with the Caisse find it advantageous to do so. With the globalization of the capital markets, maintaining a critical size has become imperative for all institutional fund managers. It gives them access to a larger variety of asset classes, as well as more and larger investment opportunities, especially in real estate and private equity. Moreover, a larger asset base allows considerable economies of scale in terms of transaction costs, research, computer systems, administrative support and development of expertise. By entrusting their funds to the Caisse, the depositors can take advantage of strength that they would not otherwise have and that very few other managers can offer.
P_5 3. What are the Caisse s responsibilities toward A depositor? The Caisse s responsibilities Fund management It invests the moneys it receives with a view to an optimal return, in accordance with each depositor s investment policy. It carries out research to determine attractive investment opportunities on various markets. It designs and offers investment products to meet depositors requirements. Advisory services The Caisse is responsible for managing the depositor s assets according to the investment policy established by the depositor. To that end, it provides fund management services, advisory services and periodic reporting. The Caisse has signed a service agreement with most of its depositors. It offers advisory services for the development and review of each depositor s investment policy, taking into account its target returns and risk tolerance. It does allocation simulations involving various asset classes to optimize the depositors benchmark portfolios. It prepares economic and financial analyses and provides risk and return forecasts for each asset class. It offers depositors information and training sessions on investment and the Caisse s operations. Reporting It submits periodic reports stating the return obtained, its source, the value added in relation to the benchmark index and the risk assumed. It issues certificates of compliance attesting that it has respected the investment policies.
P_6 4. What are the depositor s responsibilities toward the Caisse? 5. What are the target returns of the Caisse s depositors? Each depositor is responsible for respecting the financial undertakings its makes to its participants. It is therefore responsible for establishing its investment policy, namely the weight of the various asset classes, and for communicating it to the Caisse. This policy takes into account the plan s needs, its investment horizon and the level of risk it can tolerate without jeopardizing its ability to meet its obligations. It is generally reviewed every year. In addition to its obligations to the Caisse, the depos itor manages all relations with its participants. It is responsible for collecting their contributions and paying out their pension or insurance benefits, as the case may be. It also makes actuarial studies to determine the amount required to meet its financial obligations over the long term. The target returns of each depositor depend on its obligations to its participants. They are an integral part of the depositor s investment policy, which also specifies the investment horizon, the acceptable degree of risk and the construction of the portfolio. Generally speaking, it is estimated that the depositors long-term objective is an average annual return of 7%. This return should be enough to ensure their sustainability and cover the cost of future benefits. If we look at the depositors individual expectations, we see that the forecast long-term returns on their benchmark portfolios range from 3.8% to 7.2%.
P_7 6. What are the Caisse s target returns? The Caisse s main objective is to generate a long-term return that meets its depositors needs, namely about 7%. To do so, the Caisse offers its depositors 18 specialized portfolios and develops with them investment policies that enable them to meet their long-term objectives. We must bear in mind, however, that returns are not certain. According to estimates, it is probable that the Caisse s return will be negative one year out of five and greater than 8% four years out of 10. The depositors investment horizon and other factors, such as the type of plan and its financial health, give them a certain risk tolerance that enables them to accept a degree of volatility in their returns. In this context, close co-operation and constant dialogue between the depositors and the Caisse are vital. With active management of asset allocation and investment selection, the Caisse aims to outperform the benchmark indexes for all its specialized portfolios by 1%, which brings its total target return to 8% (7% plus 1%).
P_8 The Caisse s 25 depositors and the bodies that administer them (fair value as at December 31 in millions of dollars) Depositors net assets First 2007 2006 deposit $ % $ % PENSION PLANS Régie des rentes du Québec Fonds du Régime de rentes du Québec 1966 34,761 22.4 32,680 22.8 Commission de la construction du Québec Supplemental Pension Plan for Employees of the Québec Construction Industry 1970 11,774 7.6 11,087 7.7 Commission administrative des régimes de retraite et d assurances Government and Public Employees Retirement Plan 1973 46,063 29.7 44,163 30.8 Pension Plan for Management 1973 7,701 5.0 7,373 5.1 Individual Plans 1977 274 0.2 253 0.2 Pension Plan for Elected Municipal Officials 1989 173 0.1 164 0.1 Régime de retraite pour certains employés de la Commission scolaire de la Capitale 2006 49 48 Régime de rentes pour le personnel non enseignant de la Commission des écoles catholiques de Montréal 1 2007 304 0.2 Régime de retraite des membres de la Sûreté du Québec 1 2007 21 Régime complémentaire de rentes des techniciens ambulanciers œuvrant au Québec 1990 254 0.2 240 0.2 Ministère des Finances, Gouvernement du Québec Fonds d amortissement des régimes de retraite 1994 31,962 20.6 26,823 18.7 Fonds des générations 1 2007 1,008 0.6 Régime de retraite de l Université du Québec 2004 212 0.1 162 0.1 Régime de retraite du personnel des CPE et des garderies privées conventionnées du Québec 2005 53 21 Régime complémentaire de retraite des employés syndiqués de la Commission de la construction du Québec 2006 15 14 Régime de retraite des employés de la Ville de Laval 1 2007 27 INSURANCE PLANS Régie des marchés agricoles et alimentaires du Québec Fonds d assurance-garantie 1967 6 6 La Financière agricole du Québec 1968 241 0.2 232 0.2 Autorité des marchés financiers 1969 437 0.3 409 0.3 Commission de la santé et de la sécurité du travail Health and Work Safety Fund 1973 10,987 7.1 10,697 7.5 Société de l assurance automobile du Québec Fonds d assurance automobile du Québec 1978 8,283 5.3 8,207 5.7 Fédération des producteurs de bovins du Québec 1989 3 4 Régime de rentes de survivants 1997 462 0.3 452 0.3 Conseil de gestion de l assurance parentale Parental Insurance Fund 2005 200 0.1 408 0.3 OTHER DEPOSITORS Office de la protection du consommateur 1992 27 22 Société des alcools du Québec 1994 53 14 Total 155,350 100.0 143,479 100.0 1 New depositor in 2007
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