Leaders of major pension funds say Canadian governments should court global investors for new infrastructure projects.
Prime Minister Justin Trudeau's government could bolster their promised $10-billion of infrastructure funding with contributions from deep-pocketed investors at home and abroad, said chief executive officers of Canada Pension Plan Investment Board, Ontario Teachers' Pension Plan and Ontario Municipal Employees Retirement System. But it would take a little persuading and a commitment to a stable operating environment to attract those asset managers, they said.
"Let's talk about, if you are a government in Canada, whose capital you should think about attracting. You should be thinking about attracting global capital. And let the Canadian plans come and compete with that global capital," said Mark Wiseman, CEO of CPPIB, at a Canadian Club of Toronto panel discussion Monday morning. He added that this kind of approach would get federal, provincial and municipal governments the greatest number of bidders at the table – and the best pricing for critical infrastructure assets.
Several Canadian pension plans have become well-known investors internationally as they expand their private equity, real estate and infrastructure portfolios. But these funds make up a small portion of the pool of money available in the private sector.
"The reality is we are still pipsqueaks on the global stage," Mr. Wiseman said, referring to the $1.1-trillion in assets the top 10 pension plans in Canada manage, according to recent research from the Boston Consulting Group. He noted that Japan's Government Pension Investment Fund has $1.1-trillion (U.S.) under management on its own.
Pension leaders agreed that major institutional investors such as sovereign wealth funds and other pension plans are already interested in Canada for its relative stability and predictability. They also agreed on several factors that would help attract those investors to write cheques, including large-scale projects and some assurance of the regulatory environment and cash flows from the assets. These are the same factors the Canadian plans consider when looking for new investments.
Ron Mock, CEO of Teachers, said Canada is just getting to the point where governments realize they have to reach out to international investors the way senior government officials from Britain and Australia do.
Canadian pension funds have been active infrastructure investors in these jurisdictions. Last week, OMERS and Teachers were among the winning bidders for the London City Airport. And CPPIB recently announced plans to build and operate a new toll road and tunnel In Sydney, Australia.
These pension plans have no intention to invest locally out of generosity. "There's no pension obligation to help out. We have to invest globally on commercial terms," Mr. Mock said. But if more large-scale Canadian infrastructure projects came to market with attractive and predicable returns, there would be a lineup of interested investors – and not just the big Canadian funds. "There's a lot of capital that would love to come to Canada to invest in infrastructure, to invest in all sorts of things – real estate."
Infrastructure Minister Amarjeet Sohi and Finance Minister Bill Morneau have both said that talks with private-sector leaders in financial fields including pension funds have been an important part of their consultations. But neither have offered specific ideas on how the public and private sectors would work together on new infrastructure development. Some major pension executives have previously said they expect many of the projects brought to market will not be large enough to warrant investment.
"We'd like to participate at home – we're significant players here in the province of Ontario," said Michael Latimer, CEO of OMERS, on the panel. He said that the pension plan already has about $6-billion of equity deployed in infrastructure projects around the province. But he said OMERS would have to think carefully about the scope and governance of any potential new projects.
"We're not green-field investors, we're brown-field investors," he said, referring to its preference for investing in existing assets rather than developing new projects. "So we're going to be looking for stability, the quality of the credit, looking at the revenues that are going to be generated – how we can be long-term investors."