Jean Charest is a partner at McCarthy Tétrault and a former premier of Quebec. This piece is derived from his opening remarks at the Connecting Investors and Opportunities Summit in Paris on May 12 and 13.
In the modern worldwide economy, and particularly since the financial and economic crisis of 2008, institutional investors have faced a host of new and complex challenges.
The list is long – government debt, persistent unemployment, aging populations, climate change, sluggish trade growth and slow global growth. It seems that everything has changed. From the phenomenal growth of emerging economies to the plummeting prices of natural resources, the world economy has been on a roller-coaster ride.
Globally, a new middle class has emerged in new parts of the world. This phenomenon was described in one McKinsey & Co. consultancy report as the greatest change in the world economy since the creation of capitalism.
For the institutional investors, public and private, represented at a summit in Paris where I spoke last week, the challenge is to find investment opportunities that are both profitable and safe.
In that respect, we can readily see an alignment of interests between the need to build and upgrade our global infrastructure and the need for institutional investors to identify projects that are smart, gainful and secure.
The development and redevelopment of the world's infrastructure is in itself an extraordinary opportunity.
Governments that develop big projects in the public's interest have much in common with major institutional investors: They must have a long-term horizon, they have a vested interest in large-scale projects and they are as responsible and accountable to the general public as sovereign wealth funds and pension funds are to their contributors.
But governments and institutional investors don't always share the same goals, so their challenge is to strike the right balance between the public interest and the performance expectations of institutional investors, who, as we know, represent a different form of public interest.
This is the challenge that the Connecting Investors and Opportunities Summit will attempt to address. I welcome the opportunity to create a platform for discussion between these two groups, the purpose being to eventually deploy this massive source of long-term capital into constructive projects that so many countries so urgently need. The challenge is daunting but possible. The essential prerequisite for successfully aligning investors and projects is the creation of the appropriate policy framework that will allow this type of partnership.
By that, we mean policies such as those provided for in the Comprehensive Economic and Trade Agreement between Canada and the European Union, as well as public-private partnerships and policies that encourage the injection of funds provided by institutional investors with an expectation of reasonable, predictable returns over the long term. These are some of the elements that will open the doors to investment, economic growth and job creation. And yet, according to Financial Times columnist John Authors, there is a global shortfall of $1-trillion (U.S.) in infrastructure investment each year. "McKinsey estimates that in the next 15 years, the G20 nations' need for infrastructure projects, at $60-trillion, will outstrip the money invested in them by at least $20-trillion," he wrote.
The most recent innovation in investment models comes to us from the Caisse de dépôt et placement du Québec. Under the leadership of Michael Sabia, the Caisse will finance a public transit project in Montreal valued at more than $5-billion (Canadian), featuring a new investment model. "The government defines the public policy initiative, such as for some type of public transport infrastructure," Mr. Sabia was quoted as saying. "Then we take over and plan the project and do the execution. We finance the project with partners, we own it and we operate it going forward."
There are two benefits generated by this type of approach, according to Mr. Sabia. First, financing costs go on the pension fund's balance sheet, not the government's. The second advantage is political. "The person getting on a tram or crossing a bridge and paying a toll is now paying a contribution toward their pension when they do that," he said.
Infrastructure investments represent an exceptional business opportunity. The market is gigantic, but this will only be possible if public authorities create the conditions that allow long-term commitments from institutional investors. For us to work our way out of crisis, we need to welcome a new era of investment in the development of urgently needed public infrastructure.
This piece is derived from his opening remarks at the Connecting Investors and Opportunities Summit in Paris on May 12 and 13.