Friday, March 6, 2009

Henri-Paul Rousseau's Shameful Departure from the Caisse de Depot

The opposition has been hammering Premier Charest over the massive loss at the Caisse de dépôt et placement du Québec (CDPQ) and there's no doubt that the government bears responsibility for letting CDPQ mangers run amok.
The real culprit however, is the ex-president and CEO, Henri-Paul Rousseau.

Despite being the chief architect of the CDPQ’s failure, Mr. Rousseau has shamefully tried to distance himself from the fiasco by abandoning ship last year.

A little history...
The CDPQ was created in 1965 as a vehicle to invest Quebecker's pension money. The money deducted from workers is sent to the CDPQ where it is invested, much as as an RRSP.

Between taxpayer contributions and the investment income earned, the CDPQ grew to become very powerful, controlling over $155 billion dollars (0r about $25,000 for each Quebecker) at it's peak.

Henri-Paul Rousseau came to the CDPQ in 2002 to clean up the mess created by his predecessor, Jean-Claude Scraire. (in retrospect, the mess wasn't so bad.) The CDPQ had made a variety of ridiculous and un-focused moves that included amongst other things, investments in Quebec based clothing store chains and fashion houses.
By all accounts, Mr. Rousseau did a good job in re-orienting the CDPQ towards a more traditional investment strategy.
But then Mr. Rousseau and the CDPQ grew cocky and it is he, who is ultimately responsible for the two decisions that changed the future of the CDPQ and set it on it's course towards disaster.

The first decision was to eliminate the policy of investing in Quebec companies as a priority. The new CDPQ goal was to seek the highest investment returns possible, wherever they were found. It abandoned the practice of using pension money as an instrument of nation-building. When the CDPQ did invest in Quebec companies, it used the same criteria as when it invested in Canadian or foreign companies. Subsequently, the CDPQ's investment in Quebec itself, fell to just 16% of its assets and most of these investments were in the form of risk-free government or quasi-government bonds.

The second decision was the one that really proved calamitous. The CDPQ decided to pursue higher yields by placing money in riskier investments. For a couple of years, it worked out well for M. Rousseau and the CDPQ's earnings were impressive.
However, as they say, 'If you live by the sword, you're going to die by the sword' and the risky investments that made the CDPQ such good returns in the past, turned toxic in 2007 and led to utter disaster in 2008. The CDPQ reported a $39 billion loss which represented a 25% drop in value of the whole fund.

It should be noted that all Canadian pension funds have been clobbered in the current word-wide economic meltdown, but none like the CDPQ. Aside from taking a bath in the stock market, the CDPQ invested heavily in the disastrous US housing market, buying up billions of dollars of re-bundled mortgage packages that collapsed in value when home owners defaulted en masse.

The idea of investing the 'nest egg' or as they say in French 'bas de laine' in these risky ventures has made the opposition furious and blame is being directed at the government who sheepishly admits to adhering to a hands-off policy in terms of giving direction to the CDPQ.

There is no doubt that the government and Henri-Paul Rousseau hid this disastrous situation from the public for many months. Because the CDPQ is only required to report results once a year, neither the government nor Mr. Rousseau felt it was in their best interest to come clean. However, the results couldn't be hidden forever and would have to be made public by the Spring and so Mr. Charest called the December provincial election in part to avoid having to face a hostile electorite, likely to be angered by the revelation of the losses. Even so, during that electoral campaign, Mario Dumont of the ADQ warned the public of the disaster at the CDPQ, but was roundly ignored.

Back to Henri-Paul Rousseau.
In 2007, when he saw the unfolding disaster (which the public as yet did not know about) he decided to jump ship and he did so quite shamelessly.
Leaving the CDPQ early, without any reason, would have sparked uncomfortable questions and so he accepted a job, either offered or solicited, from his good friend, Power Corporation's Paul Desmarais, one of Quebec's wealthiest and most powerful tycoons. By the way, CDPQ holds investments in Power Corporation and other Desmarais companies to the tune of over $500 million.

At any rate, it is fair to ask Mr. Rousseau if he told Mr. Desmarais about the impending disaster at the CDPQ before he accepted the job. If he did, he would have breached confidentiality. If he didn't he would be accepting a job under false pretenses. Hmm...

Mr. Rousseau was so determined to distance himself from the CDPQ that he quit his job last May, fully eight months before his job at Power Corporation was scheduled to begin, in January of the this year!

The public and the press was so oblivious to the reality over at the CDPQ at the time of his departure that the fawning media praised Mr. Rousseau for his fine work.
"His shoes will be hard to fill" opined Isabelle Hudon of the Montreal Board of Trade.

To top off the arrogance, Mr. Rousseau had the audacity to accept a golden parachute payment ($350,000) from the CDPQ despite the fact that he was leaving of his own choosing and at a time when the CDPQ desperately needed an experienced and steadying hand.

The departure was so unexpected that CDPQ was caught totally unprepared. The temporary succesor Richard Guay was so stressed by the situation he was forced to take sick leave and wasn't replaced for several months. The CDPQ spent the second half of last year flailing about, without any meaningful leadership, all the while desperately holding onto it's secret. Mr. Rousseau's permanent replacement, Robert Tessier was finally named last week, nine months after his departure.

Mr. Rousseau promised that this week, he would shed some light on the affair.
Don't expect much, he is a wonderful speaker, confident, articulate and quick on his feet. The last time I saw him report on the CDPQ, he was condescending, sneering and arrogant, telling the audience that the CDPQ was under good management and run by professionals who knew what they were doing.(So bugger off, with your moronic questions!)

I don't know if it is a case of hubris or self-delusion, but I predict that he will take little responsibility for the fiasco. He will say many things, but nothing much.
Ultimately he will blame forces beyond his control or perhaps the infamous "Black Swan."

I hope someone in the media asks Mr. Rousseau to comment on his shameful and selfish exit.

Henri-Paul Rousseau led an impresive cast of fools over at the CDPQ where senior management suffer from a disastrous case of group-think, caused by the inbred nature of the organization. It is one happy little investment club where everyone is friends and outside oversight in eshewed.

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