The Caisse de dépôt et placement du Québec is set to boost its bet on infrastructure under a new deal with Quebec that will see the pension fund take over financing and ownership of new public transit projects in the province.
The pension-fund manager, which has assets of $214-billion, has struck an agreement with Quebec's Liberal government that will see it be the maître d'oeuvre, or project owner, for new transit projects in the French-speaking province. Details of the deal are scheduled to be made public at a news event in Montreal on Tuesday.
Sources familiar with the agreement described it as "a new way of financing and running public transportation infrastructure" for Quebec that will see the Caisse assume ownership over new transit assets and responsibility for building them. Essentially, the province is privatizing the plan for new public transportation projects but with an investor with which it has an established and privileged relationship.
"[The infrastructure] is not government-owned, directly or indirectly," said one person close to the situation. "It will be run like a private business."
The government's main rationale for unloading responsibility for developing new transit projects is financial. Quebec's total public-sector debt now tops $272-billion, according to the Montreal Economic Institute. The province will pay $8.6-billion in fiscal 2014-2015 to service it.
Lower oil prices will help in the short term by giving consumers more money to spend and lifting exports as the dollar declines. But government revenue still lags projections as it aims to balance the budget in fiscal 2015-2016 on the back of program spending cuts.
Facing limited financial wiggle room, the government of Premier Philippe Couillard has concluded it can accelerate the pace of new transit investments if it transfers responsibility to a deep-pocketed investor it trusts. The Caisse manages public pensions for retirees in Quebec, including civil servants. It operates with a dual legislated mandate to maximize returns for depositors and help stoke economic growth.
"All of these new projects that are in the pipeline, they will probably have to take longer to come to fruition if they were funded in the traditional way," said one source, who asked not be named. "This way they can come in faster."
Quebec estimates it will spend $7.6-billion on public transportation projects under its current 2014-2024 infrastructure plan. That's part of a larger $90-billion in infrastructure investments the province believes will be required over the next decade.
Top projects already underway include replacement of subway cars on Montreal's metro system, a contract won by Bombardier Inc., and a new commuter rail line extending east off the island to Mascouche. Among the projects under study is a light rail line across the new Champlain bridge.
A Caisse spokesman did not respond Tuesday to questions about the announcement. It was not immediately clear how much it is setting aside for the new investments.
Caisse chief executive Michael Sabia has been increasing the pension fund's holdings in real estate, infrastructure and private equity as he seeks what he calls "less-liquid" assets with intrinsic value. It's part of a profound change in investment strategy at the Caisse whereby it is trying to generate more stable returns by cutting its holdings in bonds and traditional stocks.
The Caisse is heavily present in Quebec, with recent investments in the Agropur dairy cooperative and Groupe Germain Hotels. Mr. Sabia has expressed a willingness to invest in Quebec infrastructure projects should the opportunity present itself. Last summer, the pension fund created a new executive position specifically mandated to seek business opportunities in the province. Its current portfolio of Quebec-based assets topped $53-billion at the end of 2013.
Outside its home base, the Caisse's infrastructure investments include a 26.7-per-cent stake in the Port of Brisbane in Australia's Queensland and, more recently, a multi-partner development anchored around a new GO Bus terminal in downtown Toronto.