To protect the Quebec economy from U.S. tariff harm, Premier François Legault has signed off on a $200-billion expansion of Hydro-Québec.
And Legault will make more aggressive use of government subsidies to attract businesses.
The premier’s economic plan, unveiled recently, also includes speeding up environmental and other approvals for new resource development.
So far, so good.
The Hydro-Québec expansion alone could create an estimated 23,000 new jobs by next year, helping offset the 30,000 jobs Legault believes Quebec will lose in a forestry sector hit with 45 per cent U.S. tariffs.
And as big state investments go, Hydro-Québec is low risk. Even if electrification of the economy is not as rapid as forecast, Quebec will still have additional clean power with which to attract business. The power will be cheaper than new nuclear power generation planned in Canada and the U.S.
But Legault also has in mind a dubious method for stimulating the economy. He wants the province’s giant public pension fund manager to increase its investments in Quebec manufacturing, critical minerals development and other sectors.
“Why do we have the Caisse de dépôt et placement du Québec (CDPQ)?” Legault said in a recent interview with Montreal’s La Presse.
“Precisely to compensate for the fact that we have a history where, among other things, French Canadians haven’t invested much in the business world.”
Parse that sentence and you’ll find some fallacies.
The Caisse, or “Quebecers’ savings account” as it is known colloquially, does have an unusual dual mandate to protect its pensioners’ money and stimulate the Quebec economy.
But the Caisse would not be able to enhance Quebec’s economy if it wasn’t extraordinarily prudent in its investment practices.
Legault gives the impression that the Caisse could be more supportive of Quebec enterprises, when it already is heavily invested in Quebec.
It can be argued that the Caisse is overexposed to Quebec.
As of Dec. 31, the Caisse had $93 billion invested in Quebec, nearly one-fifth of its total net assets of $496 billion. And without Legault’s urging the Caisse plans to increase its Quebec investments to $100 billion next year.
With its dual mandate, the Caisse underperforms its fellow Maple Eight public fund managers, renowned for their prudence in generating above-average returns for their members.
The Caisse’s 10-year annualized net return is seven per cent. The average for the Maple Eight is 7.7 per cent.
The top performers are the Canada Pension Plan Investment Board (9.2 per cent), the Public Sector Pension Investment Board (8.2 per cent) and the Healthcare of Ontario Pension Plan (7.7 per cent).
The Maple Eight, including the Caisse, each have Canadian investments. But their portfolios are global to prevent overexposure to any one jurisdiction. That provides the widest range of sound investment opportunities.
Finally, Legault is behind the times in slagging Quebecers as averse to investing in business.
Quebec is a leader in aerospace, food processing, financial services and defence production, among other sectors.
The term Quebec Inc. for homegrown multinationals was coined long ago to describe Quebec’s powerhouse businesses.
They include Metro, Canada’s third-largest grocer; Alimentation Couche-Tard (Circle K), one of the world’s leading convenience store operators; WSP Global, among the world’s largest engineering firms; financial services giant Desjardins Group; discount retailer Dollarama; infotech provider CGI; and Bombardier, a leading maker of private jets.
The danger in what Legault is attempting with the Caisse is that the likes of Doug Ford, the Ontario premier, might make the same demands of Ontario Teachers’ Pension Plan (OTPP) and the Ontario Municipal Employees Retirement System (OMERS), which together have $390 billion in net assets.
And that Legault’s example might tempt the premiers of B.C. and Alberta to exert the same pressure on British Columbia Investment Management Corp. (BCI) and Alberta Investment Management Corp. (AIMCo), respectively.
There are two principles at stake here.
The first is that to be credible, and attract the world’s best investing talent and co-investors, the funds must be independent of government.
Legault is violating that rule even by hinting at change in the Caisse’s management of the retirement savings of about six million Quebecers.
And the second is that it is unwise to double down by seeking investment returns from the same jurisdiction that provides your pension contributions.
A downturn in the Quebec economy would impair both the Caisse’s Quebec investments and its stream of pension contributions from Quebec workers.
Quebec has already lost prodigious sums on high-risk state investments, notably its $463 million in losses from trying to build an electric vehicle (EV) battery supply chain.
“I am a resolutely interventionist premier,” says Legault, who’s looking for a quick boost to a slowing economy ahead of an election he would lose if it took place today.
The real risk here is permanent losses of pensioners’ money, not the loss of Legault’s government, about which Quebecers would be philosophical.
