Canadian pension funds urge Trudeau to think big on infrastructure: ‘We’re looking for projects of scale’

Canada’s largest pension funds have advice for Justin Trudeau’s government as it prepares to double its infrastructure investments within the next decade: stick to the Australian model and think big.

The funds, which manage a lot more than $760 billion in combined assets, say they need large projects like airports, toll roads and ports to warrant their time and investment because of so many global assets competing for their cash.

“What exactly are we looking for? We’re searching for projects of scale,” said Mark Wiseman, chief executive officer of Canada Type of pension Investment Board, the country’s largest pension fund with $283 billion in assets.

The Canadian government isn’t expected to provide extensive details of its infrastructure plan in the March 22 budget because it’s still developing a long-term strategy. Federal officials have said an extra $10 billion is going to be made available over the next two years although it crafts a broader technique to deploy an additional $20 billion to every of three silos over the next decade: riding on the bus, green infrastructure, and social infrastructure.

The country’s largest pension funds, including Canada Type of pension, Caisse de Depot et Placement du Quebec, and Ontario Teachers’ Pension Plan, are encouraging the federal government to be ambitious for that longer-term strategy.

Canadian pension funds and money managers have become global leaders by purchasing ports, toll roads, power plants along with other infrastructure, deploying billions annually as they reduce risk in their portfolio through geographic diversification.

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Home Grown

They’ve become just too large, many have outgrown the opportunities at home, presenting challenging for that Trudeau government because it seeks outside investment. The Canadian government estimates the infrastructure funding gap in the united states is more than $150 billion, said Minister of Infrastructure and Communities Amarjeet Sohi.

Sohi is meeting various stakeholders, including mayors, premiers and pension funds, regarding how to bridge that gap.

“A vital piece of engaging private investors is a significant long-term strategy,” he explained within an e-mail interview a week ago. “We committed to doubling federal purchase of infrastructure within the next decade, which will help ensure we’ve needed funding in position for critical infrastructure.”

Places like Canada are particularly attractive for infrastructure assets, using its strong rule of law, a progressive and predictable regulatory regime, and a talented managerial class, Wiseman said.

Mature Assets

“We’re very interested in purchasing Canadian infrastructure under the right conditions,” he explained “There’s no better place to invest than near to home.”

Canada Pension, like a number of other large global investors, prefer to acquire mature infrastructure assets than finance new projects because they’re safer, Wiseman said. He encouraged the federal government to appear to places like Australia or even the U.K. as examples of how Ottawa could utilize the capital of these global funds to meet its own infrastructure needs.

There’s no better place to invest than close to home.

In 2014, the Australian government established its Asset Recycling Initiative, where the authorities grants 15 per cent from the sale price of privatized infrastructure assets to states and territories. The government funds and arises from the sales are used to develop new projects.

The Australian government estimates the initiative could spark around A$32 billion (US$24 billion) in new infrastructure investment, and global investors have taken notice.



Last year, US$52 billion was invested in Australian companies from foreign buyers, together with a record US$16.4 billion from Canadian investors, according to data published by Bloomberg. Canada Pension was part of a group that agreed to buy Asciano Ltd. in a deal announced Tuesday valuing the Australian port and rail operator at A$9.05 billion.

Quebec Model

Montreal-based Caisse, Canada’s second-largest pension fund, led a consortium last November to acquire Transgrid, a network of high-voltage utility lines, in the State of New South Wales for US$7.4 billion.

The challenge for bigger funds to invest in traditional public-private-partnerships is that the equity stake – and in turn the reward – is usually too small for them to pursue, said Andrew Claerhout, head of the infrastructure group for Ontario Teachers’.

Projects such as the Gordie Howe International Bridge in Windsor, Ontario could cost billions to construct only require an equity investment of $150 million or less because the private partners can load their investments up with debt using the government’s support, he explained.

“When we would do that to deploy $150 million that means we wouldn’t have the ability to perform a couple of other activities. So you’ve to think about returns on effort and on capital,” he said.

Ring Road 

Canadian projects that may attract interest incorporate a possible ring road around Toronto, he said. Another example would be the Metro Toronto Convention Centre, according to Michael Latimer, chief executive from the Ontario Municipal Employees Retirement System.

Michael Sabia, CEO of the Caisse, said he’d like to see the federal government follow his lead. This past year, the Caisse struck a deal to construct and run infrastructure projects that Quebec is ill- equipped to finance itself.

The Caisse is focusing on two projects in Montreal, together with a light-rail corridor around the new Champlain Bridge along with a public transit system linking downtown to Trudeau Airport terminal and West Island. The combined value of those projects is estimated to be about $5 billion.

“We believe that’s an innovative method for the federal government to purchase infrastructure as well as in a way that causes it to be fiscally manageable,” Sabia told reporters earlier this year.

The authorities has outlined some broad strokes of its plan, including developing an Infrastructure Bank that would give out loans having its government credit rating.

Sohi said it’s too soon to say whether he would eventually adopt a broader strategy, like the Australia model, to draw in global pension and sovereign-wealth funds.

“We’re inside a consultation phase and aren’t ruling out any option,” he explained.

Bloomberg News