If Canada wants its infrastructure projects to attract major institutional investors, it's going to have to walk and talk like them.
That's the message sent to Finance Minister Bill Morneau by his economic growth advisory group in a report issued Thursday. The council called on Ottawa to create an infrastructure bank to fund more than $200-billion of infrastructure projects over a decade using "as few tax dollars as possible." The bank's first goal? Attract institutional capital.
There's plenty of money competing for stable, long-term investments around the globe that can be relied upon to pay pensions, insurance claims and investment returns years into the future. The current environment of low interest rates has increasingly pushed large asset managers toward alternative investments that frequently offer higher returns. And the Canadian Infrastructure Development Bank (CIDB) could tap into some of those billions – if it proves itself reliable and transparent.
The report suggested that the bank begin with building infrastructure, such as toll highways, shipping port and airport expansions and power transmission poles and wires – the types of assets that institutional investors have sought worldwide in their hunt for yield over the last few years.
Canada's large pension funds stand out globally for their rise as private investors in the last decade. As they have grown their assets under management, funds such as Caisse de dépôt et placement du Québec, Ontario Teachers' Pension Plan and the Public Sector Pension Investment Board have increasingly sought larger projects to invest in.
The pension funds have become heavyweights in real estate, private equity and infrastructure, with growing teams of sophisticated investment professionals managing alternative assets around the world. And they have enjoyed a healthy amount of governance freedom along the way.
The council emphasizes that the CIDB should have similar values. The bank should be structured with a high level of independence from the government, the report states, to attract institutional investors and also the type of professionals needed to run the organization efficiently. The bank will also need a "CEO with world-class, relevant business experience."
The report outlines what banks, insurance companies and sovereign wealth funds will likely want to see from the bank, including clear sources of returns and transparent government processes.
Even the bank's structure takes inspiration from the country's largest pension fund. The report suggests the bank be a Crown corporation, much like Canada Pension Plan Investment Board. Former CPPIB CEO Mark Wiseman is on the advisory council, alongside current Caisse CEO Michael Sabia.
And there is one last hand extended to institutional investors – the bank would be set up to evaluate infrastructure project proposals submitted unsolicited by the private sector, as well as by different levels of government. With a Canadian infrastructure gap of $150-billion at the very least, all ideas are welcome.