Caisse de dépôt et placement du Québec has already helped Canadian investors become the single largest foreign buyer of U.S. commercial real estate since 2010.
Now, the Caisse has its eye on another big bet south of the border: infrastructure, from airports to bridges.
Canada's second-largest pension fund is aiming to double its current $10-billion infrastructure portfolio over four years and believes a significant portion of that growth will come from the United States.
"We think there are very, very substantial infrastructure opportunities in the United States," chief executive Michael Sabia told reporters in discussing the pension fund's 12-per-cent return for 2014. "In geographic terms, this would be priority one."
As part of a transformative deal announced last month with Quebec giving the Caisse new powers to develop major infrastructure projects in the province, the pension fund is carving out a new subsidiary to handle such investments. It hopes to parlay the Quebec model, based on easing the financial load on government, to other parts of the world.
The Caisse has slowly been ramping up its infrastructure exposure in the U.S. Recent investments include a $600-million commitment for a roughly 30-per-cent stake in electricity supplier Indianopolis Power & Light Co. It also holds a 16-per-cent interest in U.S. petroleum pipeline Colonial and is said to be among a group being solicited to bid for natural gas pipeline operator Southern Star Central Corp.
But, ever searching for investments that generate long-term stable cash-flow, it wants more.
"There is a significant demand and need for infrastructure investment in the U.S., in particular in the transport sector," said Macky Tall, who leads the Caisse's infrastructure business. "Many roads and bridges are in need of being repaired and renewed."
Despite the historic reluctance of the U.S. government to open up the country's physical assets to private investors such as the Caisse, President Barack Obama's administration has recently shown more openness in light of the strained finances of many state governments. As U.S. Transportation Secretary Anthony Fox said last year in announcing the Build America Investment Initiative: "The reality is we have trillions of dollars internationally on the sidelines that are not being put to work."
Mr. Sabia has been executing a strategy of boosting investments in tangible assets such as real estate and infrastructure while focusing on public equities it sees as high-quality and less risk. The aim is to generate even and predictable results at a time when equity markets remain erratic and low yields are expected to continue in bond markets.
Last year's 12-per-cent return was powered by strong gains in U.S. stock holdings. The Caisse's global equity portfolio in particular, which invests in large-cap companies, returned 18.5 per cent as those multinationals tapped into growth in the U.S. consumer market and the economy in general.
Asked if public equity markets are overheated, Mr. Sabia noted that efforts companies have made on cost-cutting have fuelled an improvement in corporate profits of late. He said that can't continue forever and that companies will need to generate revenue growth eventually.
"We're not calling for a big correction in the markets," Mr. Sabia said. "Our sense of this is, yeah the elastic is stretched pretty tight. And we're very conscious of that. That doesn't lead us to believe things are going to snap tomorrow. But we're very vigilant about it."
With a stake of about 10 per cent, the Caisse remains a major investor in SNC-Lavalin Group Inc. Mr. Sabia said the pension fund continues to back the engineering company's efforts to win new business and put its ethics scandal behind it, even in light of new corruption charges laid by the RCMP last week.
"The fact that we haven't changed our position, I think, speaks clearly about what we think about the current situation," Mr. Sabia said.
Returns over the past four years under Mr. Sabia's watch have totalled 9.6 per cent. His five-year term as CEO was extended in 2013.