Canadian pension funds could be big beneficiaries of Brazil’s decision to unleash a $66-billion (U.S.) infrastructure investment strategy, but, for now, they remain somewhat wary.
Executives at this country’s largest pension funds were caught off guard by Brazillian President Dilma Rousseff’s announcement Wednesday that Brazil will, among other things, sell concessions for 7,500 kilometres of toll roads and hire private firms to build 10,000 kilometres of railroads. Further announcements on potential new shipping port and airport deals are expected soon.
It’s the type of announcement that you might think would get the Canadian pension plans salivating. Most of them are looking to bolster their exposure to emerging markets, have experience in Brazil, and are constantly hunting for infrastructure opportunities.
And indeed, executives at the funds said they will undoubtedly be taking a look at the opportunities that come out of these announcements. “Brazil has a big infrastructure shortage,” said Leo de Bever, CEO of Alberta Investment Management Corp. (AIMCo), which has invested in Brazilian barge transportation. “Under the right conditions, we’d look to participate in alleviating it.”
But some executives stressed that, when it comes to Brazil, the devil will be in the details. “I think it will be a big opportunity, but we will have to learn more about the regulatory regime and the process for the sales,” said an executive at another Canadian pension plan.
Deals with the Brazilian government tend to be higher-risk than those in some other emerging markets with infrastructure opportunities, because the rules are not as straightforward and officials have been known to change their tune, executives said. Bureaucracy, red tape, and politics have frustrated some private firms that have sought to do deals in Brazil. And, although Brazil hopes to get things going quickly, Ms. Rousseff said Wednesday that Brazil will establish a state-run company to oversee the plans for these projects.
Aside from the pension funds, Brookfield Asset Management will undoubtedly take a look at the opportunities. It has a team of people in Brazil who have already been hunting for infrastructure deals and just this month Brookfield Infrastructure Partners announced a $1.7-billion (U.S.) joint venture that saw it pick up a stake in one of Brazil’s largest toll road operators and owners.