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Canada's PSP Takes 23% Writedown on ABCP Holdings

By Frederic Tomesco

July 22 (Bloomberg) -- Canada's Public Sector Pension Investment Board wrote down the value of C$1.97 billion ($1.97 billion) in asset-backed commercial paper by 23 percent, resulting in an investment loss for its most recent fiscal year.

The writedown on non-bank commercial paper was C$450 million for the year ended March 31, PSP Investments, as the fund manager is known, said in its annual report. PSP reported a loss on investments of 0.3 percent for the 2008 fiscal year, the first decline since 2003.

Non-bank commercial paper hasn't traded in Canada since the market collapsed in August on concerns about U.S. subprime mortgage loans. PSP was part of a group of institutional investors that spent seven months drafting a restructuring plan for the frozen debt.

``While we have not escaped completely unscathed, we remain confident that over 95 percent of the underlying assets supporting the ABCP we currently own are of high credit quality,'' PSP Chief Executive Officer Gordon Fyfe said in the annual report, which is posted on the fund managers' Web site.

PSP is the third-biggest holder of frozen ABCP in Canada, after Caisse de Depot et Placement du Quebec, with C$12.6 billion, and National Bank of Canada, with C$2.25 billion. All three are based in Montreal. Caisse de Depot wrote down its ABCP holdings by about 15 percent in February, while National Bank's writedown has amounted to about 26 percent.

As of March 31, PSP managed about C$38.9 billion for retired Canadian government employees, soldiers and policemen.

Portfolio Impact

PSP said the writedown on the asset-backed securities trimmed the fund's return by 1.2 percentage points. The fund also marked down the value of its portfolio of collateralized debt obligations by C$470 million, cutting the overall return by another 1.2 percentage points.

The losses on ABCP and CDOs ``generally reflect deteriorated credit market conditions and related mark downs,'' Fyfe said. ``There are very little, if any, credit losses in both ABCP and CDOs and the possibility of recovering the nominal investment value in a subsequent period is probable if general credit conditions improve.''

Fyfe was paid C$1.28 million in total compensation last year, a 26 percent cut from C$1.72 million in fiscal 2007. His bonus shrank to C$153,780 from C$660,800, as the fund fell short of its performance benchmark of 1.2 percent.

PSP spokeswoman Anne-Marie Laurendeau didn't immediately return a call seeking comment.

To contact the reporter for this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net.

Last Updated: July 22, 2008 10:52 EDT
 

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