As part of the 2006-2008 strategic planning exercise carried out in 2005, the Caisse analyzed its external envi- ronment and the forecast returns for the asset classes in which it invests. It also assessed the progress accomplished over the past three years from the organizational standpoint to obtain a picture of its internal environment.
From these analyses and findings, the Caisse established strategic priorities and an action plan that should enable it to continue adapting to its rapidly changing environment and to produce sustained long-term returns from diversi- fied sources. The following headings summarize this process.
External environment and forecast returns
The Caisse operates in a market undergoing considerable change:
• Profound structural changes to the global economy; • Greater complexity of the investment universe and
investment strategies;
• Increased correlation between markets; • Lower returns on bonds;
• Lower equity risk premium;
• Abundance of capital and intense competition between investors;
• Growth of the hedge fund industry; • Financial burden of pension funds; • New legislative and regulatory provisions;
• Increased importance of social, ethical and environmen- tal criteria in investment decisions;
• Preponderant role of information technology and opera- tional efficiency in portfolio management.
It appears that the markets will provide lower returns in the years to come. Still, with a balanced portfolio and success- ful implementation of its strategies, the Caisse is aiming for an overall 7% return over a 10-year period, which should allow it to meet its depositors’ long-term expectations.
Internal environment
In the past three years, the Caisse has taken various measures to position itself for the future. More specifically, it modified certain methods in 2005 to adapt to the new provisions of its constituting statute regarding such matters as the responsibilities of the Board of Directors.
Here is a brief description of the main measures taken in recent years.
Depositor relations
• Signing of service agreements.
• Revision of investment policies in co-operation with depositors.
• Development of portfolio-simulation and -analysis tools for depositors.
• Revision of documentation for the specialized-portfolio investment policies.
• Additional training activities on finance and the economy.
Products offered to depositors • Creation of new investment products.
• Increase in the weight of the less liquid specialized port- folios in the benchmark portfolio.
• Development of absolute return operations within the investment groups.
Governance
• Coming into force of the policy on socially responsible investment.
• Adoption of new codes of ethics and professional conduct. • Improved compliance and internal audit functions.
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Ambition
Business model
• Changes to the Caisse’s management structure and specialized portfolios as a function of the asset classes in the overall portfolio.
• Cessation of the development of external clienteles, except for the Real Estate group according to targeted business strategies. Closure of Caisse offices outside Canada.
• Greater use of external management to diversify value- creation sources and to acquire new expertise.
• Reorganization of the Private Equity teams and adop- tion of a new position geared to the most profitable niches.
• Monitoring and assessment of the best practices used by institutional fund managers.
Operational levers
Human resources excellence
• Consolidation of human resources management by recruiting talented personnel, developing competencies and succession, reviewing policies and developing pro- grams for compensation, performance management and employee recognition.
Rigorous, dynamic risk management
• Reinforcement of risk management with an integrated risk management policy to refine risk measurement methods and to improve market risk management tools. Leading-edge research
• Development of leading-edge research through work on investment policy, a reassessment of internal research and optimization of external research.
Leading-edge technology and operational efficiency • Improved technology and operational efficiency through
implementation of a strategic information technology plan, improved operational and project-management capabilities and implementation of several new manage- ment systems. Financial controls and reporting were also improved.
The Caisse’s ambition
The Caisse’s clarified mission and the determination of its employees and management enable it to operate in a rap- idly changing environment. The rate of change has acceler- ated considerably in recent years and this phenomenon will continue.
The prospect of limited returns, difficulty in taking advan- tage of value-creation sources and a shortage of invest- ment talent mean that fund managers both large and small must change their approach. The success of institutional fund managers, long associated only with investment and disinvestment decisions, now depends on embracing and striving for excellence in all aspects of the organization. To put it plainly, to succeed in creating value, the Caisse must rely on its employees’ expertise, its investment strategies and its ability to adapt to accelerated change.
The Caisse’s ambition is therefore to become a benchmark organization for its depositors, employees, partners, peers and the public. To that end, it will achieve a sustained finan- cial performance, draw inspiration from a team culture and common values, provide leadership in governance and inte- grated management, rely on talented employees, ensure it is regarded as an employer of choice and equip itself with robust operational levers.
The table on the following page presents the characteristics of the Caisse’s ambition.