The Caisse de dépôt et placement du Québec is deepening its involvement in infrastructure projects through a partnership in a consortium making a $1.25-billion (U.S.) takeover offer for an Australian gas pipeline owner.
But Canada's largest fund manager and its partners may have a fight on their hands if a rival bidder ups the ante.
The Pipeline Partners Consortium, which includes the Caisse and Utilities Trust of Australia, has made a conditional takeover bid for Hastings Diversified Utilities Fund, operator of two key gas pipelines feeding Australia's Moomba onshore gas hub.
The energy company also has promising coal seam gas projects as well as liquefied natural-gas export projects in Queensland.
Utilities Trust is managed by Hastings Diversified Utilities Fund's manager, Hastings Funds Management.
Hastings Diversified's shares soared on the possibility that APA Group – which already owns 20.7 per cent of Hastings – will move to sweeten its hostile $1-billion bid. That initial offer has been held up by Australia's competition watchdog.
The Pipeline Partners bid is conditional on winning at least 70 per cent support.
Hastings has granted Pipeline Partners due diligence for a period of up to 45 days as well as a "no shop" commitment and a $5-million break fee.
Details of the Caisse's stake in the consortium have not been disclosed.
Over the past few years, the Caisse has been striking out into non-traditional areas such as infrastructure and private equity as it and other pension funds diversify away from low-return, volatile stocks and bonds to meet the challenge of funding their obligations to pensioners.
Investments like Hastings Diversified offer stable assets and predictable rates of return, says Janet Rabovsky, senior consultant with Towers Watson's investment practice.
What's more, institutional investors such as the Caisse have become more sophisticated shoppers in the infrastructure sphere, she said.
"As markets evolve, there is a greater understanding of what to go after," she said.
Caisse chief Michael Sabia has emphasized the need to invest in so-called alternative investments such as infrastructure, whose performance is less tied to volatile indexes.
The Caisse's $6-billion infrastructure portfolio – with about 20 investments – posted a return of 23.3 per cent last year, its best performing investment class.
Recent investments include Belgium-based natural gas pipeline and liquefied natural gas terminals operator Fluxys G and Colonial Pipeline, the largest refined petroleum product pipeline in the U.S.
"The portfolio is composed of regulated, monopolistic assets and assets with revenues under long-term contracts, generating stable and high cash flows that are predictable in the long run," the Caisse says in its 2011 annual report.
Energy investments accounted for 45.3 per cent of the infrastructure portfolio last year.