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Michael Sabia, president and CEO of Caisse de dépôt et placement du Québec, is seen during an interview with The Canadian Press Monday, December 21, 2015 in Montreal.

Paul Chiasson/THE CANADIAN PRESS

Caisse de dépôt et placement du Québec is revamping its investment approach in an environment chief executive officer Michael Sabia calls "increasingly complex."

Canada's second-largest pension fund is merging its public market and private market investment management under the oversight of its chief investment officer and creating a separate subsidiary for its prized infrastructure group.

Forecasting anemic growth prospects and more modest returns, the Caisse sees the next few years as more challenging for institutional investors who will need to take extra care to choose investments and structure deals in a way that protects against market volatility.

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"In this context, selecting high-quality assets and focusing on the operations of our portfolio companies will be more critical than ever," Mr. Sabia said in a statement.

The fund's global private equity activities and assets, along with public market assets including fixed income, will now fall under chief investment officer Roland Lescure. Mr. Lescure joined the Caisse in 2009 from a French asset manager and has played a pivotal role in recent major deals, including the Caisse buying a 30-per-cent stake in Bombardier Inc.'s train business.

In that deal, the Caisse blended public and private investment styles by negotiating terms such as a guaranteed return floor of 9.5 per cent and performance incentives to encourage better results. As the lines between public and private equities blur more frequently for large investors such as pension funds, the Caisse will bring both sides together in its flexible new structure. That could help capture opportunities that might fall somewhere in the middle.

Mr. Lescure will oversee the spectrum of these potential investments while taking on a more strategic role that includes approving significant deals and co-chairing the investment-risk committee.

The shift follows Friday's announcement that Andreas Beroutsos would step down as executive vice-president of private equity and infrastructure. He had been in the role for a little less than two years, and stepped down for personal reasons.

The Caisse also said it would set apart its infrastructure group, which has been an increasing priority for Mr. Sabia in recent years. He plans to double the Caisse's $10-billion portfolio by 2019. Over all, the Caisse had $248-billion in assets at the end of 2015.

Last month, Mr. Sabia said in a speech that "the world has changed" for institutional investors who are no longer able to earn adequate returns on the vanilla stocks and bonds that once did the job. As one way to diversify, the Caisse is developing an infrastructure investment approach that would plan, finance, build and run public projects that governments help identify as priorities.

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The Caisse created CDPQ Infra as a separate subsidiary to build its infrastructure investments and develop this owner-operator model. Leading the group as chief executive officer is Macky Tall, who also becomes a part of the Caisse's executive committee and the investment-risk committee. Mr. Tall was already leading the Caisse's infrastructure business.

There's some precedent for independent business units at the Caisse, with real estate group Ivanhoé Cambridge also operating separately.

Along with these announcements, the Caisse assigned more responsibility to recent hire Jean Michel, an asset allocation specialist who joined the fund last month from Air Canada Pension Investments. He will lead a new division – depositors and total portfolio construction – to better align the liabilities of the pension funds and insurance plans for which the Caisse manages money with the makeup of the Caisse's portfolio.

The Caisse's more than 30 depositors help to determine what types of investments make up its benchmark portfolio and what the expected returns should be, among other things.

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