Risk Management: One of Caisse de dépôt et placement du Québec’s top priorities
Montréal, April 27, 2010 - Following erroneous allegations about the disclosure of external consulting mandates, the Caisse would like to mention the following facts:
• The Board of Directors, its committees and senior management work closely together. In this environment, the Risk Management committee did not retain the services of any consulting firm in 2009, as indicated on page 124 of the Annual Report. Instead, the services of consulting firm McKinsey were retained by senior management in accordance with Caisse rules and procedures.
• The Caisse’s management always acknowledged, during recent conversations with journalists, the existence of the McKinsey risk management mandate.
• The previous PricewaterhouseCoopers mandate called for risk management analysis and benchmarking and comparison with industry peer practices. The aim of the McKinsey mandate was to integrate their risk management and technology resources with the Caisse’s risk management and technology teams to accelerate the implementation of its risk management plan.
Risk management focus
The Caisse de dépôt et placement du Québec stated today that one of its top priorities, following the $40 billion loss in 2008, was to develop and implement an accelerated, institution-wide risk management plan.
To guide the development of new measures, the Caisse retained the services of world-renowned management consulting firm McKinsey & Company, whose Montreal office has solid risk management expertise and access to an international risk management network.
The consulting firm’s services were retained by the Caisse’s management in accordance with the institution’s practices and procedures in this area. The Caisse presented a detailed report on its risk management progress in a specific section of the Annual Report, on pages 74-85.
The McKinsey mandate was in effect from May 2009 to January 2010.
Following the financial crisis, the world changed abruptly for financial institutions like the Caisse-and the organization has not had time to adapt as quickly to this environment. This created a gap between actual risk-taking and the Caisse’s ability to effectively manage risk.
Issues & responses
In spring 2009, the Caisse implemented a series of measures to strengthen its risk management, as detailed in the Annual Report:
• Issue: Limited understanding of the actual overall exposure to market risk
- Response: The Caisse’s new methodology is consistent with industry best practices, covering all positions and measuring actual market risk with greater precision
• Issue: Monthly market risk measurement- Response:Daily market risk measurement is possible with the new methodology
• Issue: Imprecise credit risk measurement
- Response: The Caisse is currently implementing a system for measuring portfolio credit risk
• Issue:Incomplete information for liquidity risk management
- Response: The new integrated approach to liquidity risk management and stress tests enables the Caisse to better manage its liquidity under any conditions
• Issue: Stress tests that are too basic
- Response:Creation of more sophisticated stress tests
• Issue: Investment policies that are too general
- Response:Review of investment policies and clarification of new investment product rules
• Issue: Need to clarify accountability and decision-making rules
- Response:The composition and mandate of committees were reviewed and risk management was handled directly by the Executive Committee
• Issue:Core risk management team
- Response:The risk management team was considerably strengthened by the addition of specialists who interact with the Caisse’s investment groups-namely, with a risk management expert dedicated to each asset class
• Issue:Complex, technical risk reports
- Response:Complete overhaul of the risk report format and content to promote internal dialogue and better understanding of issues
• Issue: Risk management culture that does not meet new needs
- Response: Many initiatives to foster a more sophisticated risk management culture and the recruitment of specialists for each investment area
ABOUT THE CAISSE DE DÉPÔT ET PLACEMENT DU QUÉBEC
The Caisse de dépôt et placement du Québec is a financial institution that manages funds primarily for public and private pension and insurance plans. At December 31, 2009, it held $131.6 billion of net assets. As one of the leading institutional fund managers in Canada, the Caisse invests in the main financial markets as well as in private equity and real estate.
For more information: www.cdpq.com.
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