Caisse CEO Fernand Perreault, left, announces the fund's results as chairman Pierre Brunet watches at a news conference in Montreal on Wednesday. (Ryan Remiorz/Canadian Press)

The Quebec government will call top officials from the Caisse de dépôt et placement du Québec before a special legislative committee to explain how the pension fund lost $39.8 billion last year, the biggest loss in its history.

The Caisse, which is the largest institutional pension fund manager in Canada, released its 2008 financial results on Wednesday, revealing a 25 per cent drop in the fund's assets.

As of last Dec. 31, the fund's assets were worth $120.1 billion.

Premier Jean Charest called the results "disappointing, but not surprising." He wants Caisse managers to appear before a special legislative committee to explain why they took the risks they did.

"It is very important that we draw the right directions and that we be able to ensure in the future that the Caisse de dépôt is properly managed, and that it can move forward abiding by the mandate given to it by the population," said Charest.

He denied his government ever pushed the fund to take bigger chances in hopes of raking in larger returns, something Opposition parties have accused his government of doing.

Managers blame market crisis, ABCP investments

Caisse president and CEO Fernand Perreault blamed the losses on a number of factors, starting with the sudden shakeup of world financial markets.

"As with all other investors, the first element that explains our return this year is the global financial crisis that broke out in the fourth quarter," said Perreault.

'In hindsight, we placed too much confidence in these securities …. It was a mistake to accumulate so much ABCP.' —Fernand Perreault, Caisse president

However, he said the fund's decision to delve heavily into asset-backed commercial paper (ABCP)also cost it dearly. The Caisse invested $12.6 billion in the form of short-term debt, making it the largest holder in Canada.

With the market for the debt frozen, ABCP accounted for $4 billion of the Caisse 's total losses in 2008.

Perreault now admits investing so heavily in ABCP was a bad idea.

"In hindsight, we placed too much confidence in these securities …. It was a mistake to accumulate so much ABCP," said Perreault.

"We mistakenly believed that these products were as safe, or almost as safe, as other money market instruments."

Another factor that caused major problems for the Caisse was lower-than-anticipated returns on real estate investments.

The Caisse is among the world's 10 largest real estate asset managers. The portfolio lost the fund $3.7 billion last year.

Perreault said the fund manager has spared no effort to preserve the long-term value of its investments.

"This episode has accelerated the review of our risk management methods and has led to new efforts in this area," he said.

New chair, president to be named

The future decisions about risk may be undertaken by new leadership.

Quebec Premier Jean Charest Finance Minister Monique Jérôme-Forget discuss the Caisse de Depot report, Wednesday. (Jacques Boissinot/Canadian Press)

Charest confirmed Wednesday that the Caisse will soon appoint a new president and CEO. The position is currently being filled on a temporary basis by Perreault.

A new chair of the board will also be appointed, said Charest.

Parti Québécois leader Pauline Marois said politics should not play any role in the decisions about the future leadership of the fund.

"I think the most important thing is to name somebody who is competent…. That should be the only criteria," Marois told reporters.

The pension fund is one of Canada's largest pools of investment capital and a major investor in real estate, blue-chip Canadian companies and well-known Quebec firms such as Quebecor Media.

Its clients are mostly Quebec public and private pension and insurance plans.

The Caisse had the Midas touch between 2003 and 2007, generating the strongest annual results among the largest Canadian pension fund managers, at 12.4 per cent average return.