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New Caisse boss defends Quebec roots Add to ...

Michael Sabia evoked his late grandfather, an Italian immigrant who arrived penniless in Montreal almost a century ago, to underscore his Quebec roots and attachment to French Canada in his first public grilling by provincial politicians as head of the troubled Caisse de dépot et placement du Québec .

Mr. Sabia, who was recently tapped by Premier Jean Charest to run the $120-billion provincial pension fund manager, appeared before a National Assembly committee yesterday, asserting he "never sought this job" and passed up offers on several continents in order to "render service to Quebec."

The appointment of Mr. Sabia, an Ontario-born anglophone and former head of Bell Canada parent BCE Inc., raised eyebrows in Quebec where the Caisse is widely expected to act as the champion of the province's French-speaking business class.

Though Mr. Sabia has lived in Quebec for 16 years, his tenure at Montreal-based BCE was marked by a perceived shift in the company's upper management and operations to Toronto.

Resentment over Mr. Sabia's appointment rose to the surface yesterday when, appearing before the National Assembly's finance committee, the new Caisse chief was forced to defend his Quebec bona fides during a heated exchange with Parti Québécois MNA Jean-Martin Aussant.

The sovereigntist politician asserted that "someone who tries to sell a Quebec jewel to Toronto is maybe not rendering service to Quebec."

Mr. Aussant was referring to Mr. Sabia's decision as chief executive officer of BCE Inc. to engineer a $35-billion leveraged buyout of the telecom giant by Ontario Teachers Pension Plan. The deal, which collapsed last year, was largely viewed in Quebec as one that would lead to the eventual relocation of the company's head office to Toronto from Montreal.

The comment, which came near the end of nearly four hours of testimony, was too much for Mr. Sabia. While the Caisse CEO had until then adopted a measured tone, often spiced with humour, he shot back angrily at Mr. Aussant.

"Almost 100 years ago, my grandfather arrived here in Montreal with nothing, nothing, nothing in his hands. Why did he stay here? Because he was convinced that Quebec is an open society," Mr. Sabia said. "I grew up with this perception. I am not going to accept your position. I have an understanding of Quebec and I chose to work here - over a lot of other opportunities in Asia and in the United States - to render service to Quebec."

The Caisse , which is Canada's biggest institutional investor and manages the assets of 25 provincial funds including the Quebec Pension Plan, has been reeling from the worst performance in its 44-year history and upheaval in its executive ranks. It lost 25 per cent of its value, or $40-billion, in 2008.

Mr. Sabia has emphasized the need to strengthen the Caisse's risk management practices to avoid the disasters of recent years, notably the institution's overinvestment in now toxic non-bank asset-backed commercial paper. The Caisse has so far written off more than 40 per cent of its $12.6-billion in ABCP.

Mr. Sabia likened the Caisse's situation to that of Canadian National Railway Co., which was a bloated Crown corporation when he arrived there as second in command in 1993, and BCE, which was on the skids from its disastrous investment in Teleglobe Canada when Mr. Sabia was brought in as CEO in 2002. Before the MNAs, Mr. Sabia underscored his role in putting both companies on the right track and said he would do the same at the Caisse .

Though BCE's corporate activities appeared to have shifted increasingly to Toronto in recent years, Mr. Sabia noted that he oversaw the construction of a $250-million new head office "campus" to demonstrate the company's commitment to Montreal.

The new Caisse head did his best to avoid being hauled into a debate over the mission of the institution, which in the past has often been used as instrument of economic nationalism. It has mentored some of the province's most successful entrepreneurs .

"I'm Catholic but not Jesuit," Mr. Sabia told Parti Québécois finance critic François Legault, adding that he saw no contradiction between the Caisse's dual missions of seeking the best returns on its investments while contributing to Quebec's economic development.

Mr. Legault criticized the Caisse's current absence from the boardrooms of the province's largest corporations. He noted that the Caisse held relatively few shares of Bombardier Inc. and SNC-Lavalin Inc., and no shares of National Bank of Canada - a situation that would leave the Caisse powerless to keep those companies in Quebec hands if they become the objects of takeovers. The Caisse remained on the sideline during the 2007 takeover of aluminum icon Alcan Inc., and its consortium withdrew early from the bidding for BCE.

Mr. Sabia countered that it would cost the Caisse between $25-billion and $30-billion to buy "blocking positions" or shareholdings big enough to have a voice in future transactions involving about two dozen of the largest Quebec-based corporations.

"As far as I'm concerned, that's expensive - from the perspective of risk management and diversification - and it [would deprive the Caisse ]of the flexibility to make [more attractive]investments elsewhere," Mr. Sabia said.

Mr. Sabia agreed the Caisse needs to overhaul its compensation practices, which led portfolio managers to take excessive risks in a quest for ever-bigger bonuses. But Caisse chairman Robert Tessier, who was also recently appointed by Mr. Charest, rejected a suggestion from Mr. Legault that the government should have a voice in approving the salaries of Caisse managers.

"I have a big problem with that idea," Mr. Tessier said, asserting that the Caisse should be free of political interference.

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