At 2 o'clock on a midwinter weekday afternoon, the air at the YMCA on Montreal's Park Avenue has a sepulchral feel to it. A few bored patrons climb aimlessly to nowhere on the StairMaster, their faces as wan as the February day. There is no music to lift the mood. The mechanical drone of a few exercise machines, the occasional clank of a dumbbell and, now and then, a stiletto cough slice through the silence. It is as unlikely a place as any to find Canada's most powerful stock picker. But here is Michel Nadeau, pedalling purposefully on a Lifecycle, his head buried in, of all things, a pop-ular women's magazine. For a brief while, anyway, Nadeau is taking refuge from all the self-interested sycophants, solicitous CEOs and other tedious business types who curry his favour. The cellphone and vibrating beeper-for use in market emergencies-are the only visible vestiges of the money manager's usual accoutrement.

Nadeau religiously works out seven days a week, sometimes twice a day, at the Park Avenue Y. The benefits go beyond the obvious leanness of his 6-foot-1-inch frame. He comes here, to the multiethnic, working-class Mile End neighbourhood, he confides, to blend in with ordinary folk and flee the financial types who flex their muscles at the high-priced downtown clubs. "This clears the mind," he says of his half-hour on the Lifecycle. "It is often in these moments that my instinct surfaces. And I believe a lot in instinct."

Nadeau's instinct is legendary at the colossal Caisse de dépôt et placement du Québec, where he oversees Canada's biggest stock and bond portfolio as senior vice-president of core portfolios and assistant general manager. His instinct is the first quality that caisse chairman Jean-Claude Scraire mentions when asked why he chose Nadeau as his second-in-command. And it is the quality Nadeau has most put to use in devising the tactics that have made the provincial pension fund manager variously feared and admired across corporate Canada and, increasingly, around the world. With a team of about 80 portfolio managers under him, the slight, severe-looking 53-year-old former journalist often decides to whom the caisse giveth-and from whom it taketh-the $100 billion in public-sector pension and insurance money the Quebec government has entrusted it to invest. Little wonder CEOs will do just about anything to get Nadeau on their side; their deals, and sometimes careers, can depend on his support. Just ask Onex chairman Gerry Schwartz, who applied himself assiduously last year to win Nadeau's nod for his bold proposal to buy and merge Montreal-based Air Canada with Canadian Airlines. Or Air Canada CEO Robert Milton, who just as concertedly courted Nadeau on his way to becoming the ultimate victor in the airline tussle. Rare is the deal in Quebec that does not bear Nadeau's imprint.

When suitors meet him, their attention inevitably hones in first on his stern, dark gaze, harsh features and unfash-ionable-in business circles-jet-black beard. The hearing aids perched behind each ear are inconspicuous against his weathered, olive-tinged skin. His are rich, interesting looks, but they provide merely an avant-goût of what is housed within. Nadeau's eclecticism and eccentricities have disarmed many an interlocutor on the business cocktail cir-cuit. He is as comfortable expounding on the French existentialists as he is discussing "queer" politics, Quebec rap group Dubmatique or jazz diva Diana Krall, an artist over whom he gushes like a schoolboy with a crush. He is also a doting father, whose devotion to his two teenage children makes other working dads cringe with guilt. Not only did Nadeau take daughter Maëlle to New York for her birthday in both 1998 and 1999, he also had her bring along six friends and played chaperone to the whole gaggle of screeching teenyboppers. Says Nadeau's younger brother, Jacques: "He is certainly not severe with his kids. I mean, it's shocking sometimes."

Those who sit opposite him at the negotiating table rarely encounter this side of Nadeau. They are more like-ly to come face to face with a no-nonsense, almost humourless perfectionist with extraordinary self-disci-pline and a singular, almost obsessive focus on return.

"Michel has the great advantage of knowing what he wants. And he lets you know that right off. He's very straight," says Schwartz. Milton, Schwartz's archrival in the battle for Canada's skies, adds: "My take on Michel and his people was that these were the kind of guys I would want managing my money. There was no doubt they were seeking a return." Those who've seen Nadeau in action are awed by his intensity and power of concentration. Others set their watches by him; Nadeau sets his own five minutes fast. "He's like a Jesuit priest; he's got this incredible dedication and self-discipline," says Toronto pension consultant Keith Ambachtsheer. Adds Stephen Myers, head of the South Dakota Investment Council: "When you speak to Michel, you have to listen very carefully because he speaks softly and humbly. He's not boastful."

Indeed, Nadeau would very much like to remain the faceless bureaucrat. He rarely grants interviews. "I've never sought to promote my public persona. I don't see how it could be interesting," he says in his modest eighth-floor office on Montreal's McGill College Avenue. But anonymity is an option Nadeau gave up long ago. To be sure, Scraire remains the public face of the caisse. Yet it is rare to find anyone worth a Bay Street address who does not know of Nadeau or, more importantly, his influence. Nadeau directly oversees the caisse '5 mammoth, publicly traded stock and bond portfolios, which were worth about $70 billion at the end of 1999. He sets the caisse '5 asset mix, manages its risk-hedging activities and use of derivatives, and directs its research staff. This in addition to taking on "strategic mandates," a euphemism for dealmaking, such as leading the negotiations for the caisse in the airline con-test or brokering Rogers Communications' offer to purchase Vidéotron. The only aspects of the caisse's business that do not fall within his purview are its real estate and its venture capital activities.

Many see Nadeau as the front-runner for the top job when Scraire's 10-year appointment is up in 2005. Scraire himself, one suspects, would like that. "The fact that Mr. Nadeau has been my deputy at the caisse for the past five years is a testimony to the confidence I have in him," he offers. For his part, Nadeau would rather carry on at a senior bureaucrat's salary-$215,000 a year-than accept one of the many more lucrative offers he's had from the private sector. "That's the Jesuit priest side of him," Ambachtsheer marvels. "He's into public service."

Nadeau has earned the admiration of his peers through-out North America-who have made him the only non-American member of the National Association of State Investment Officers-for helping to transform the caisse from an unremarkable, if dependable, performer into one of the continent's most dynamic and innovative money managers.

Notwithstanding some much-publicized forays into economic nationalism, the caisse had been a fairly sleepy pension fund manager until Scraire and Nadeau took over the top jobs in 1995. Its investment philosophy had been archconservative. It had consistently missed out on the biggest bull markets of the previous quarter century; provincial law prevented it from holding more than 40% of its assets in stocks. Its Canadian peers, meanwhile, had been plowing an average of 55% of their assets into equi-ties in the early '90s.

Scraire put Nadeau in charge of the caisse's publicly traded portfolios with a mandate to increase their weighting in equities, both domestically and internation-ally. Scraire persuaded Parti quebecois Finance Minister Bernard Landry to lift the ceiling on equities, effective in 1998. Stocks now account for about half of the caisse's investments, and the proportion is rising steadily. In 1994, the caisse had barely '/ioth of its assets, or $4.6 billion, in foreign and U.S. equities. Under Nadeau's aegis, the for-eign stock portfolio has ballooned to more than 20% of assets, worth about $20 billion.

The change in asset mix has been accompanied by a change in investment style. Nadeau has inculcated an entrepreneurial mindset in his staff. In the past, the stock and bond portfolios were managed centrally, and the same, unbending rules applied to every investment. "Now, we've become 80 small businesses," Nadeau says. "Each manager is free to pursue his or her own investment style. And I let them do it, knowing that if one makes a mistake it's not a tragedy because I've got all kinds of different styles at work. Every one of them can't go wrong at the same time." It's this kind of independence, Nadeau adds, that enables him to attract top managers to the caisse for a quarter of the going rate in the private sector. Each manager is a niche player with a portfolio of homogeneous,highly specific assets----foreign technology stocks, U.S. junk bonds, Canadian blue chips. No two portfolios are alike in either size or risk profile. Each money manager is assigned a performance target based on the value-at-risk (VAR) method. It's classic bell-curve stuff-calculating the maximum return possible based on historical performance for a given portfolio. Managers can double their salaries by beating their targets. The change in investment style, Nadeau says, has yielded "quite remarkable" results. In terms of return on investment, the caisse

moved into the top 10% of Canadian money managers-pension funds and mutual fund companies combined-for the first time in 1999. The caisse earned an overall return of 16.5% last year, bolstered by a 32.7% gain on its Canadian stock portfolio.

Number-crunching know-how is a prerequisite for Na-deau's job. But it remains secondary to the shrewdness he must possess as the caisse's chief dealmaker. As a signifi-cant shareholder in dozens of big companies, the caisse has exceptional bargaining power, and Nadeau does not squander it. They call him "the haggler" on Bay Street.

How often is that haggling driven by quebec nationalism? "We're in the business of creating wealth for our depositors" is Nadeau's terse response. The answer is by now so rote it fails to satisfy. After all, the caisse is not a typical pension fund manager. Its mission is twofold: to generate the best return possible for its beneficiaries and to promote quebec's economic "dynamism." The latter mandate remains, one suspects, purposely vague. It hasn't always been so ambiguous. The caisse was conceived by its creators, Jacques Parizeau among them, as much as a political instrument as an economic one. Its role as an agent of social change is celebrated in quebec: Its hand in fostering the creation of a francophone business class is as big a source of pride as Ce line Dion's Grammy-lined mantel (well, almost). Most of Quebec Inc.'s leading lights of both the present (Telesystem's Charles Sirois, Vidéotron scion André Chagnon) and recent past (Quebecor's Pierre Péladeau, Provigo's Antoine Turmel) were essentially creations of the caisse.

Still, there are not-so-subtle changes afoot under Nadeau. "Occasionally the caisse does things that look like they belong to the [political] part of its mandate, but Michel is unequivocally in the business of making money," says Ambachtsheer, who charts pension funds' cost-effectiveness and counts the caisse among his clients.

No one suggests the political agenda has been ex-punged. Nadeau, after all, has a strong nationalist bent-he openly endorsed sovereignty as an editorial writer at Le Devoir in 1980. But the blatantly protectionist tactics to which the caisse resorted in the past are mostly passe'. They have been replaced by a more worldly attitude less resistant to market forces. The change stems from a sense of "mission accomplished"; French-speaking quebeckers now control the province 5 economy and a slice of the world's to boot. It reflects, too, a recognition that quebec is simply too small for an investor as big as the caisse. And it betrays Nadeau's own personal evolution. "I think Michel has moved beyond [sovereignty]," says a former Le Devoir colleague. "He sees globalization at work. And he recognizes the impasse in which the sovereigntists find themselves."

Growing up in QuebeC City's working-class Lower Town, Michel Nadeau's universe was always big-ger than that of others around him. His father, André, worked for a commercial printer; his mother, Lucia, raised the couple's seven children. As a lanky adolescent, Michel, the second-eldest, stood out for more than his height. "He was the 'brain' of our neighbourhood," re-calls his brother Jacques, a photographer at Le Devoir. "He was never ambitious in the sense of wanting to be a millionaire. But he definitely wanted to succeed. He was just about the only one on our street to do his collège classique [the equivalent of a liberal arts undergraduate degree under quebec's old church-run school system]."

Like most educated Quebeckers of his generation, Nadeau gravitated toward political activism in the late 1960s. His desire to understand the origin and exercise of power led him to study political science and business administration at Laval University. He switched to business entirely and earned an MBA from Laval in 1972 without ever really unravelling the riddle he had set out to solve.

After university, Nadeau spent two years working in Paris, but returned to quebec in 1974 when Le Devoir publisher Claude Ryan was looking for someone to beef up the paper's business coverage. Ryan soon had Nadeau writing editorials on economics. But the two did not always agree. By the time Ryan took over as leader of the Quebec Liberals and the "No" forces in the 1980 referendum, Nadeau was actively endorsing the other side.

Interestingly, Nadeau's sovereigntist convictions were not dulled by what he remembers as a happy indoctrina-tion in English-Canadian culture a few years earlier. In 1977, Nadeau was awarded a Southam fellowship to study at the University of Toronto. As a fellow at the U of T's blue-blood Massey College, Nadeau got his first taste of stiff-lipped Upper Canadian society, and revelled in it. "There were only the Masseys and the masses," he chuckles, echoing B.K. Sandwell's famous line. He fondly recalls the famous Friday night High Table dinners, over which col-lege master Robertson Davies presided. The formal events introduced him to figures such as Margaret Atwood, Karen Kain, Conrad Black and, of course, Davies himself. Recalls Nadeau: "It was at Massey that I discovered English-Canadian culture. I remain very attached to it. Davies left a big mark on me."

The cultural experience, however, came second to the professional transformation triggered during Nadeau's year in Toronto. He took graduate courses in portfolio management and finance. At the time, his goal was to bolster his credentials as a part-time university instructor at Montreal's E'cole des Hautes E'tudes Commerciales, where he had been teaching business students about the media. Back at Le Devoir, however, Nadeau undertook a more fun-damental reassessment of his career after the departure of his mentor, Ryan, and the paper's slide into the postre-ferendum doldrums.

Nadeau was contemplating-without enthusiasm, apparently-an offer from La Presse when he got an unexpected call from caisse chairman Jean Campeau. The two had lunch. Nadeau asked Campeau for career advice; Campeau responded with a job offer. Nadeau immediately vaulted into the ranks of top management at the caisse, as senior vice-president of planning and depositors' affairs. The new recruit's lofty title may have raised eyebrows, but Campeau was not concerned. "There were probably people with stronger technical abilities, but none had Michel's vision," remembers Campeau, who went on to become finance minister in Jacques Parizeau's Pqgovernment. "He had an open mind. He had spent most of his life in quebec, but he wasn't confined to it.... And by his writing in Le De-voir, he proved that he had quebec's economic develop-ment at heart."

Nadeau's talents also impressed another Campeau pro-te'ge'-Scraire. And when the latter was appointed to the top job by Parizeau in 1995, he made it known to his board that he wanted Nadeau as his lieutenant.

Nadeau says his investment deci-sions are often emotional. It's a rather astonishing admission for a profes-sional known for his painstaking number-crunching and analysis. But, Nadeau explains, he's just been read-ing philosopher Robert C. Solomon's 1976 book The Passions, which ad-vances the counterintuitive argument that emotions are rational. Solomon contends that emotional reactions are the result of evaluations made by the mind after processing all of the information available to it, and can, in fact, lead to sounder judg-ments than logic alone. Nadeau ex-pounds enthusiastically on the the-ory, which is further developed in another of his favourite books, Emotional Intelligence, the 1995 bestseller by American psychologist Daniel Goleman. Nadeau sees instinct, the enigmatic quality others seem to ad-mire so much in him, as a combination of emotion and reason.

Occasionally, Nadeau admits, his instinct has betrayed him. The caisse lost an embarrassing $70 million on Bre-X Minerals in 1997. Still, Nadeau could barely conceal his giddiness in January when telecom giant BCE Inc. announced it was spinning off virtually all of its stake in Nortel/Networks to its shareholders. On the morning after the news was made public, Na-deau responded with a disarmingly hearty "tres, tres, très bien," to the routine banal greeting "Comment ça va?" He explained that the caisse had taken a major position in BCE during the previous weeks. "I think this is my second-best day ever at the caisse."

The best, Nadeau figures, would have to have been a decade earlier, when, as a portfolio manager, he was negotiating the sale of a minority stake in a California developer. The prospective buyer offered to pay a 50% premium for the caisse's stock, and Nadeau, gleefully anticipating the windfall, immediately decided to take it. He called to accept the offer from his kitchen telephone. Just as the bid-der came on the line, Nadeau noticed his young daughter careening danger-ously close to the stove. He hollered "Non, non, non!" Taken aback, his buyer immediately increased the bid.

Nadeau is, fundamentally, a pragmatist. His negotiating style is more realpolitik than scorched-earth. "I don't approach a negotiation with the objective of destroying an adversaryor completely winning. The goal is to arrive at a compromise, to reconcile objectives that, on the face of it, appear contradictory."

One of Nadeau's Le Devoir editorials, written only three days before the 1980 referendum, offers a prophetic glimpse into the strategic thinking of the man who would go on to become the caisse's chief haggler. Noting that federal politicians had showered the pro-vince with expensive promises dur-ing the campaign, Nadeau observed: "Quebeckers have discovered what it's like to be courted. It seems that all that is needed is to play one's cards right in order to raise the stakes. In the balance of power between a country and a region, each community possesses a fixed political weight. The art is in the way they use it to shift the balance. .. .Whatever the result of the referendum, the outcome is already positive for Quebeckers. This solicitude with which [the federalists] have so generously hon-oured quebec could give its inhab-itants the taste for holding more referendums."

Richard Currie obviously had not read Nadeau's widely noted editorial before launching an unsolicited takeover offer for Provigo Inc. in the middle of the quebec provin-cial election campaign in 1998. Cur-ne, CEO of Toronto-based grocery giant Loblaw Cos. Ltd., must have fig-ured his $15-a-share offer was too good for even Nadeau to find fault with. Before rumours about the Lob-law bid began to swirl in the summer, Provigo's stock had been hovering around $9-pretty much where it stood when the caisse accumulated most of its 36% stake years earlier. In-deed, to anyone who'd been holding Provigo's go-nowhere stock, Loblaw's offer looked like a no-brainer. But, true to the strategy he had articulat ed 18 years earlier, Nadeau milked Loblaw's solicitude for all it was worth. Scraire led the public strate-gy, hinting in media interviews that the caisse would scour the globe for a rival bidder; Premier Lucien Bou-chard, on the campaign trail, sent out other discouraging signals about the impact of the sale on quebec's farmers. Even when no white knight materialized, Scraire refused to publicly endorse the Loblaw offer, raising concerns that the pension fund manager was simply determined to stop an Ontario-based suitor from gobbling up a piece of quebec Inc. Enraged shareholders, especially U.S. arbitragers who had jumped on Provigo's stock, feared the caisse's manoeuvring would deprive them of a nifty profit.

Behind the scenes, meanwhile, Nadeau went unflinchingly about his task. On the final day that the bid was in play, with a midnight Vancouver time deadline pending, Nadeau went to bed at 3 o'clock in the afternoon Montreal time, and awoke at 10 p m Re freshed, he joined caisse lawyer Claude Bergeron at the bargaining table, where he'd been negotiating for hours, to no avail, with Currie and his adviser Peter Eby from in vestment dealer Nesbitt Burns Nadeau's arrival kick-started the talks. What transpired at the table only those present know. But with two minutes to go before the dead line, they reached a deal on price Loblaw agreed to kick in about $1 a share more in cash and stock Side agreements were worked out over the weekend, committing Loblaw to keeping Provigo as a separate Quebec-based company and favouring farmers in the province with supply contracts. The final deal was an nounced the following Monday Con fides Scraire, chuckling: "Michel knows just how far to push without endangering a deal."

Nadeau similarly made the most of CEOs' indulgence during the airline saga last fall. With 5.6% of Air Cana da's voting stock and about 20% of its non-voting equity the caisse was the airline's biggest shareholder. Hence its support was crucial to Onex 5 bid to buy the carrier and merge it with beleaguered Canadian Airlines The caisse had been a satisfied investor in Onex more than once. It believed in Schwartz's ability to make money Schwartz and Nadeau speak of each other if not as buddies, then at least as long-time, trusted business part-ners. They spoke almost daily dur-ing the two-and-a-half-month air-line saga. By comparison, Nadeau and Milton were practically strangers in late August when they held their first formal meeting after the Onex bid was tabled.

So, what of the widely reported rumour that a caisse official called Onex's Toronto head office on the Friday before a crucial Nov. 8 shareholder vote on the Onex bid to read a news release the pension fund manager was about to send out endorsing Schwartz? And this-the rumour goes-at the same time that the caisse was also dis-cussing a $300-million financing package for Air Canada that would help the airline thwart Schwartz's bid? Milton had a reason to question Nadeau's good faith: They had been unable to seal their initial meeting with a handshake because Nadeau had his wrist in a cast, the result of a roller-blading mishap.

Nadeau bristles when the notion of duplicity is ralsed. "There was never, ever a draft press release of support for Onex by the caisse. Never, ever. Ask Gerry?" Schwartz refuses to discuss it. No press release was ever issued. At any rate, the caisse's support for Onex, real or imagined, became moot when, that same Friday after-noon, the quebec Superior Court quashed its bid. Only days later, the caisse announced its $300-million purchase of Air Canada debentures. "By then, I was able to give Michel's hand a good shake," Milton quips.

The days roll on; the deals too. Nadeau never misses a beat. On one day in February, he found himself negotiating one megatransaction with Ted Rogers and André Chagnon and another with Quebecor CEO Pierre Karl Péladeau. Unbeknownst to the market, Nadeau was working simultaneously behind the scenes on Rogers's $5.6-billion offer to buy Vidéotron and Quebecor's move to sell Donohue to Abitibi-Con-solidated for $5.8 billion, days before either was announced.

The old caisse would surely have vetoed the sale of Quebec's dominant cable franchise to an Ontario suitor After all, it literally founded Vidéotron with Chagnon, retained a 16% voting interest and held a right of first refusal over its sale. Likewise, the old caisse would surely have resisted the takeover of Donohue, a newsprint producer that had always been controlled by quebeckers and which quebecor had bought from the provincial government in 1987. With Nadeau as chief negotiator, however, the new caisse adopts more subtle tactics. It still tinkers with the market. It still has nationalism on the brain But Nadeau, more than his predecessors ever could or cared to, always manages to reconcile politics with the profit motive.

Last year, Nadeau briefly flirted with the idea of returning to Le Devoir to succeed the departing Lise Bissonnette as publisher. The Parti Québécois government, with Bernard Landry leading the charge, is said to have secretly lobbied the paper's board of directors on Nadeau's behalf. The rumour of political interference pretty much killed Nadeau's chances of leading a paper that prides itself on being the only independent daily in Quebec. But Nadeau's ambitions, one suspects, are too broad to again find satisfaction in the armchair quarterbacking of the editorialist. He left journalism the first time, he confides, because he wanted to do rather than say. "I adore my work at the caisse. I am playing apart in the development of a fas-cinating institution, a global player," he says. Le monde is Nadeau's oyster.

It's just after 10 p.m., and the Park Avenue Y is almost deserted. A lone patron straddles the exercise bike for a final ride of the day. He'll still be there when they're ready to turn out the lights. Just as is almost always the case at the bargaining table, no one outlasts him. ·

One assignment during his late-'70s stint at Le Devoir had Michel Nadeau calculating the best method of travelling between Montreal and Quebec City, a well-worn route for Le Devoir's loyal readership of political operatives and bureaucrats. Nadeau concluded that

car-pooling beat out both the bus and train for cost-effectiveness and convenience.

The article prompted a call from the disgruntled head of voyageur Colonial Buslines, a certain Paul Martin, who pressed the journalist to redo his research. Nadeau reluctantly agreed and hopped on the bus for the provincial capital, once again on assignment. On the trip, he found himself seated next to a young French e'migre'e, Genevieve Galbuet. She was soon to become Nadeau's lifelong conjointe. But the amorous encounter did not colour the analysis he set out to complete; he still rated the bus as second-best.

A few years later, Nadeau and Galbuet, who works for one of the caisse's real-estate subsidiaries, were dining with Martin and his wife, Sheila. The latter inquired how Nadeau had met his charming girlfriend. Nadeau relished his response: Your husband introduced us. APRIL 2000 REPORT ON BUSINESS MAGAZINE