CPP Investment head says governments needing money should look at selling off infrastructure

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The head of the Canada Pension Plan Investment Board says cash-strapped governments around the world should put airports, toll roads, utilities and other infrastructure up for sale to ease their current financial pains.

“There’s so much capital chasing private assets that if governments want to raise money, they’ll get incredible prices for infrastructure assets – operating and revenue-producing infrastructure assets – wherever you are in the world,” chief executive officer Mark Machin said Thursday in a meeting with Globe and Mail editors and reporters. “Just a ton of capital will go for it.”

Mr. Machin’s view, of course, is not a disinterested one: The CPPIB is one of the world’s biggest investors in private assets, such as infrastructure and real estate. At Sept. 30, the CPPIB had $37-billion invested globally in infrastructure, plus another $60-billion in real estate and energy assets.

There is room for more. “We’d be delighted to compete for it,” Mr. Machin said – even as he conceded the competition makes that more difficult.

As interests rates have fallen, stayed low and then fallen again, all sorts of investors have piled into private assets, seeking better returns. Increasingly, Mr. Machin says, infrastructure is replacing fixed income or bonds in some portfolios because it has some similar characteristics, such as long-term income generation with less volatility than some other investments.

“It’s causing this enormous amount of money around the world to go to all of these areas,” he said. “And it makes it hard to find opportunities that offer sufficient returns for us.”

The CPPIB reported its results for the quarter ended Sept. 30 earlier this week, reporting a 5-per-cent return in the three-month period. While publicly traded stocks are the largest component of the portfolio, they make up less than one-third of the total pie. The CPPIB’s heavy reliance on private assets means it can outperform the stock market when it drops sharply, as it did in the March 31 quarter, but also means it lags considerably when equities zoom, as they did in the three months ended June 30.

Mr. Machin said that the CPPIB wasn’t heavily invested in certain areas that have borne a particular brunt of the COVID-19 economic decline. The pension fund’s real estate group has never cared for hotels or casinos, he said, and the fund also hasn’t invested much in movie theatres or airlines. While CPPIB loves airports, it keeps getting outbid for them by other institutional investors.

But the CPPIB is invested in theme parks and cruise lines, and earlier this month said it and partner TPG Capital LP put an additional US$500-million into Swiss-based Viking Cruises Ltd., whose business model targets retired customers. People will take cruises again, Mr. Machin says, and Viking will be a survivor.

While there’s a positive outlook reflected in that particular decision, Mr. Machin says the CPPIB doesn’t have an overarching optimism across all its investment calls, and it remains cautious about what happens next.

“We don’t expect the global economy to be back up at pre-COVID levels until late 2022,” Mr. Machin said. “So there’s a long recovery here. And when we’re stress-testing individual companies, we’re not predicting a rosy outlook. There’s going to be troubled times through to 2022 and potentially beyond.”

During COVID, the CPPIB has benefited from investments in data centres, logistics and e-commerce – “a move to digital has been accelerated by five to 10 years,” he says.

And, “we will invest in things that are part of the rebuilding of economies. So things like the greening of the economy, continued investments in renewable energy. I think people want to build back better, as is the tagline right now.”

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