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It fell harder than most other major pension funds in last year's financial meltdown. And now the Caisse de dépôt et placement du Québec is expected to lag its peers in the recovery.

Quebec Finance Minister Raymond Bachand took the unusual step yesterday of playing down expectations for the giant Caisse after a newspaper report said it is poised to deliver a return on its investments of about 5 or 6 per cent in 2009, compared with 10 or 12 per cent for the other big institutional players.

"The Caisse was underweight in stocks, and given that stock markets have rebounded considerably, the Caisse's results will certainly not exceed those of competing pension funds or industry peers," Mr. Bachand told Radio-Canada television.

"I don't expect the Caisse to outdo the markets this year," he said.

An article in La Presse yesterday cited unnamed sources that said the Caisse's financial results from the first 10 months of 2009 indicate returns for the full year will be less than stellar.

"They blew it," said Michel Nadeau, executive director of the Institute for Governance of Private and Public Organization and a former senior Caisse executive.

"There are magic moments in investing and this was one of them," he said about the stock market turnaround earlier this year.

While other funds got back into equities quickly, the Caisse was slow to act and is still catching up, he said.

As the provincial nest egg of most Quebeckers, the Caisse has been under fire in the National Assembly and in the media as concerns mount that its failure to get back on track could result in underfunding issues for various Quebec pension plans - including the Quebec Pension Plan - and force some of them to hike the contribution rates.

The 2009 results, expected in February, will be the first full-year results for Michael Sabia, the former head of BCE Inc. who took over the Caisse in March.

Mr. Sabia moved quickly to shake up the management ranks and put in place more stringent risk-management systems after the Caisse came under fire for its huge $40-billion loss in 2008, a significant part of which was due to large bets in high-risk products.

Mr. Bachand said yesterday he still has full confidence in Mr. Sabia.

But questions are being raised as to whether Mr. Sabia's cleanup job is slowing down efforts to fully take advantage of the global financial recovery under way.

"I think they had to clean out the stable. It's going to be another while before it's cleaned out, at least another year," said Stephen Jarislowsky of Montreal-based portfolio manager Jarislowsky Fraser Ltd.

"That means they're not going to have a very effective use of the money that's there, because of what has to be cleaned up."

Caisse spokesman Maxime Chagnon said yesterday that Mr. Sabia has been rebuilding the fund's stock portfolio.

At the end of 2008, the Caisse had about 22 per cent of its net assets invested in stocks. That has jumped to 34 per cent as of the end of September, 2009, Mr. Chagnon said.

He declined to comment on the Caisse's performance figures so far this year.

The Caisse last year reported a $40-billion loss on its investments, which is equal to a negative return of 25 per cent, compared with an average return for its Canadian pension fund rivals of minus 18 per cent.

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