"I know now that SNC is tarnished because of what's happened but you can't lose the forest through the trees," Caisse CEO Michael Sabia told reporters Tuesday during a discussion of its new strategy to shield itself from market volatility.
"As a long-term investor, we're convinced that we're going to deliver value for our depositors and at the same time, help build a legitimate potential world leader in that sector."
Sabia said the Caisse would have likely sold its stake in the Montreal-based company had it not been convinced of SNC-Lavalin's (TSX:SNC) potential to become one of the few Quebec and Canadian firms that have a "legitimate claim to be a world leader."
He said new CEO Robert Card is starting to make decisions to move on from the ethical breaches of some former employees, which included millions of dollars in payments to unknown agents and alleged $160 million in bribes to the family of deposed Libyan dictator Moammar Gadhafi.
"Those are serious difficulties for sure. We're very focused on that but our perspective on this, is this is a time when a long-term investor like the Caisse needs to help that company build a bridge to a different future."
Sabia said the Caisse has the same long-term positive outlook about its investment in home renovations retailer Rona (TSX:RON).
He said the company decided long before the hostile bid from Lowe's to increase its stake in the company and didn't act because of some "red phone call" from its political masters ordering it to do so.
"This is nonsense," he said angrily in a boardroom overlooking downtown Montreal.
"We started building a position because we thought that the company had potential... and frankly the Lowe's offer was so far below what we think the value creation potential of that company is (that) we weren't comfortable with the offer."
Sabia said the Caisse increased its stake in Rona to 15 per cent to send a message that there was no way the company would be sold at that price.
"But we did that on the basis of our work analyzing this business down to the God-damned nuts and bolts," he said.
Working with fellow shareholder Invesco, the Caisse pushed for changes to the board, including the appointment of an experienced chairman.
The Caisse plans to take a more active role in its investments, where appropriate, especially involving companies in Quebec.
It says CGI (TSX:GIB.A) is a case where it sees no need to act because the IT firm's management is solid and its prospects are bright.
Intensifying its internal expertise to evaluate the potential of sectors and individual companies is part of its strategy to increase investments in real estate, infrastructure and private equity to generate stable long-term returns.
It recently launched a Global Quality Equities portfolio that will hold about 10 per cent of its investments in about two years.
The portfolio contains investments in big name companies such as Nestle and Heinz and is valued at a "few hundred million dollars."
But the Caisse plans to expand that to about $15 billion by the end of 2014 to give its depositors increased exposure to stable returns.
Like many large institutional investors, the Caisse is trying to navigate through dramatic changes of subdued growth in western countries, the impact of a growing middle class in developing countries, low interest rates and volatile markets.
"We have reached a time where the markets are no longer a good gauge of value," Sabia added. "We think this volatility will last a long period of time. It's not just a temporary phenomenon."
It plans to add $10 billion to $12 billion in less-liquid investment over the next two years as it seeks to increase it holdings in real estate, private equity and infrastructure to more than 30 per cent, up from 25 per cent.
The strategic investment shift by Canada's second-largest pension fund manager is designed to outperform market indices over the long-term instead of focusing on the growing tendency to short-term returns.
"Our objective frankly is not to be spectacular. Our objective is to be stable, durable and able to navigate in a volatile world because we are a long-term investor."
Instead of investing to ride waves of market indices, the Caisse is looking for investments in quality companies or buildings.
It recently teamed up with U.S. private equity firm TPG to spend $400 million on a London office building and is also focusing on real estate in Paris.
The Caisse, which invests the pension funds of provincial government employees and insurance plans had $159 billion of assets as of Dec. 31, 2011. About 37 per cent of its assets are invested in publicly traded stocks.