Finance Committee on April 23rd, 2009

[John McCallum, Liberal, Markham—Unionville, ON]

That's the gist of it, yes.

[Barbara Miazga]

Okay. I haven't had a chance to think about that, so I may ask if we can provide a response later to the committee on that particular question.

The position we've taken is that's a requirement to help ease onerous funding requirements under solvency and that any additional restrictions, such as putting in place more quantitative limits to further constrain the plan sponsors, would just be counter-productive.

So to my knowledge—

[John McCallum, Liberal, Markham—Unionville, ON]

It sounds like you're wanting to have your cake and eat it too, and not make any compromises.

[Barbara Miazga]

At this point, I'm not sure that a compromise would achieve anything without creating additional problems. The basis for lobbying to remove the quantitative limits is that they're arbitrary. The prudent person standard is more appropriate and in keeping with best practices globally. So to put in place restrictions relating to the investments would just be counter-productive. To put in place guidelines relating to the benefits, such as the inability to take contribution holidays and the inability to make changes to the benefits, is a separate issue.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McCallum.

Mr. Laforest, please.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you, Mr. Chairman.

Good morning to all of you.

My first question is for Mr. Valentini. By definition or because of the organization's name, the Public Sector Pension Investment Board is connected to the public sector. You said earlier that, under the legislation, you have no obligation to make information public regarding the Board's performance.

[John Valentini]

Under the legislation, we have an obligation to publish our annual report. At the end of each year, that report is submitted to the President of the Treasury Board, which tables our annual report in Parliament. If you visit our website, for example, you will be able to access our annual reports and that is where, on a yearly basis, the report is also made available to the public.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

So, your returns are—

[John Valentini]

They are made public.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

In your presentation, you said that the Board is a fund manager, as opposed to a pension plan manager. In spite of that, you refer, further on in your statement, to the basic equation of a pension plan, which suggests that you are also familiar with pension plans--

[John Valentini]

The liabilities must also be considered.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

You state that it is the basic equation, and you go on to say: “[...] net contributions plus investment returns [...] should equate the present value [...] ”. That is the basic principle that underlies a pension plan. Do you not have the sense that a lot of people have forgotten that?

[John Valentini]

At PSP Investments, we have not forgotten that. When we develop our investment policy and our reference index portfolio, they are built on that specific goal. We work with the Office of the Chief Actuary. Every year, we review our investment strategy to ensure that the equation is intact. Every three years, the Chief Actuary prepares a triennial actuarial report on the Plans, which also incorporates our assets. So, that is considered. Our strategies, or our reference portfolio investment, also consider that.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Are managers at the PSP Investment Board of which you are Executive Vice-President given performance bonuses? Do any managers receive special benefits or performance bonuses?

[John Valentini]

Are you talking about bonuses or performance incentives?

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Yes.

[John Valentini]

Yes.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Such as at the Caisse de dépôt et placement du Québec?

[John Valentini]

Just as is the case with most of our peers or people who work in fund management, and particularly, pension fund management.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

In recent years, has the Board invested in asset-backed commercial paper?

[John Valentini]

Yes. Our annual report is very explicit in that regard. As I mentioned in my presentation, we did invest in ABCP. We also took part in the Crawford committee for almost two years, with a view to resolving the problem.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

If you invested in these securities, one imagines that you are expecting to suffer significant losses.

[John Valentini]

There have been losses. They are primarily connected to the liquidity crisis. The credit spreads have had a negative impact on these products. This is a basic product whose value is influenced by interest rates. Yes, we did produce forecasts. However, most of the forecasts will not be realized. In the long term, the purpose of the restructuring was to recover our initial capital.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

The committee heard from Mr. Duguay, Deputy Governor of the Bank of Canada. He said that, in 2005, the Bank of Canada did issue warnings with respect to the extreme volatility of these securities—asset-backed commercial paper.

How is it that the Public Sector Pension Investment Board still decided to invest in commercial paper, even though it is a federal agency and the Bank of Canada is fairly closely linked to it? How is it that the Board still invested in these securities, particularly since only one rating agency, DBRS, had rated that investment and the others had declined to do so? That is quite troubling.

[John Valentini]

I must admit that I was not aware of the report tabled by the Bank of Canada several years ago. I was aware of the decision by Standard & Poor's, which refused to give a rating to ABCP in Canada. However, that goes back to the beginning of the year 2000. DBRS gave a triple AAA rating; CBRS previously, had also done so--