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Caisse de dépôt et placement du Québec President and CEO Michael Sabia and Quebec Premier Philippe Couillard shake hands at a new conference in Montreal on Tuesday, Jan. 13, 2015. The Quebec government plans to have the Caisse de depot pension fund system take over the financing and ownership of infrastructure projects, starting with public transit.

Ryan Remiorz/THE CANADIAN PRESS

The Caisse de dépôt et placement du Québec has spent years distancing itself from the political controversy that comes from its unique dual mandate to generate returns for pension plan clients, while bolstering the Quebec economy.

These concerns are surfacing again with the Caisse's announcement on Tuesday that it has struck a sweeping pact with Quebec's Liberal government to finance and manage an estimated $5-billion of investments in the province's aging transportation system.

At a press conference in Montreal, Caisse chief executive officer Michael Sabia said the unique pension partnership was initiated last summer by Quebec Premier Phillipe Couillard, whose heavily indebted government lacks the resources for such an ambitious project.

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Mr. Sabia said the Caisse's independence will not be compromised by the unusual alliance.

"There's no question … here of government imposing things, no question here of La Caisse becoming a financial arm of the government of Quebec," he said.

The Caisse's dual mandate has long placed it in a unique space in North America's capital markets. Its dual strategy has exposed the Caisse to past criticism that it puts Quebec ambitions ahead of its duty to deliver superior returns for the $214-billion of assets it manages on behalf of several provincial pension plans. Remember the Caisse's $450-million loss after it backed an ill-fated local takeover of Steinberg Inc. grocery stores to thwart a bid by Loblaw Cos. Ltd in the late 1980s? Or the $2.8-billion it paid to back Quebecor Inc.'s winning bid for a 45-per-cent stake in Quebec telecommunications company Groupe Vidéotron, trumping one from Toronto-based Rogers Communications?

Tuesday's news is a modern twist on the 1930s-era strategy to win jobs and votes with massive government fiscal stimulus. Imagine if Franklin D. Roosevelt had tapped the California Public Employees' Retirement System to finance the Hoover Dam.

It will be years before the returns from the Caisse's new investments in Quebec's infrastructure can be properly measured. For the Caisse's pension fund clients, the only measure that matters is future investment returns on subway, bridge, road and rail upgrades anticipated under the project.

If results are dismal, critics will once again rail against the hazards of its dual mandate.

If, however, the Caisse is successful, there is an even greater risk. Other provinces may be inspired to tap their well-stocked public sector pension plans to bankroll political ambitions of New Deal-style public works projects.

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That is something that should give all pension members night sweats. Some of Canada's biggest pension fund managers, the Canada Pension Plan Investment Board (CPPIB) and the Ontario Teachers' Pension Plan, spent their early years investing members' pension savings in government debt.

Teachers, for example, was restricted for much of its history to buying Ontario government debentures, with interest rates conveniently set by the province. For decades, teachers' retirement savings built the province's roads, bridges and hospitals. What was good for the province, however, was terrible for pension-plan members in the 1980s, when runaway inflation chewed away at savings invested in low-rate Ontario debentures.

Since CPPIB and Teachers were granted independence from political influence in the 1990s, the funds have grown to be ranked among the most admired in the world for their investment finesse and steady asset growth. Their success, and the retirement security of hundreds of thousands of plan members, would have been impossible without the government breakups.

If Mr. Sabia's track record is any indication, the Caisse will continue to place a priority on investment returns. Since he was handed the reins in 2009 to rescue the Caisse from a disastrous gamble on asset-backed commercial paper that led to a $40-billion loss, the fund manager has recovered its investment credibility.

In the four years ending June, 2014, the Caisse reported an average annual return of 11.1 per cent. Mr. Sabia, the Caisse's pension-plan members and the government of Quebec cannot afford anything less.

Over the next 20 years, seven million Canadian workers are slated to retire, marking the largest retirement migration in the country's history. Millions of those retirees depend on the Caisse to grow their retirement savings.

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Poor investment choices will hand Quebec a much bigger bill than the one for fixing today's aging roads and bridges.

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