November 25, 2008 / 10:41 PM / in 10 years

UPDATE 1-Caisse selloff spurred by hedging losses-paper

(Updates, recasts with Caisse statement)

VANCOUVER, British Columbia, Nov 25 (Reuters) - Caisse de depot et placement du Quebec dismissed a report on Tuesday that global financial turmoil had forced to it to dump C$10 billion ($8.1 billion) of stocks to free up cash, but Canada’s largest pension fund manager conceded it has taken a hit.

The Caisse said its adjustments to deal with the Canadian dollar’s instability and the volatile markets have included selling “liquid securities,” but it was “in proportions that are much smaller than those reported in the media.”

A spokesman declined to give specifics on how much was sold, but a statement from the Caisse said the actions to preserve capital were completed in October and since then the stock markets have fallen about 12 percent.

The Caisse began the year with C$155.4 billion of assets, but has sold billions in equities over the past two months after taking losses on currency hedging and derivatives, as well as international real estate and private equity, the Globe and Mail reported, citing unnamed sources.

The paper said the fund’s hedging strategy took a hit from the recent sharp decline of the Canadian dollar.

“The Caisse has adjusted its currency-hedging operations in the context of the Canadian dollar’s instability, and has closed out certain futures contracts that could have created the need for additional capital in a down market,” it said in a written statement.

The arm’s-length government agency manages investments for various public and private pension plans. Since the fund manages the retirement savings of Quebeckers, the idea of losses eating into pension checks has become a hot topic in the province’s three-week old election campaign.

“The Caisse deplores being the subject of such attention in a context of extreme market volatility, during a global crisis that affects all international investors,” it said in response to Tuesday media report.

The Caisse said it had about $20 billion in liquid assets.

Pension funds have been losing money as stock markets decline, but the liquidity squeeze is more acute for the Caisse, because the fund has C$13 billion of asset-backed commercial paper that has been frozen since August 2007 due to the credit crunch, the Globe and Mail said.

Last week, the Caisse said in a statement it is converting certain international equity portfolios that were actively managed in Montreal to passive, index-based portfolios, and that 10 employees will lose their jobs.

The fund also said its president and chief executive, Richard Guay, is off work for four weeks on his physician’s advice.

$1=$1.23 Canadian Reporting by Allan Dowd and John McCrank; Editing by Frank McGurty

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