How Canada became the centre of the infrastructure universe

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The world's biggest infrastructure investors banded together recently to launch an advocacy group, called the Global Infrastructure Investor Association. The chairman of the GIIA is Swiss. The CEO is a Brit. Founders included massive funds in Australia, the U.S., Europe and the Middle East.

But when this international crew held their first-ever annual meeting in June, they opted to gather in Toronto. Newly named GIIA CEO Andy Rose, who is based in London, said the decision reflected the fact that when it comes to infrastructure, Canada is where the money lives.

This country is home to the largest and most sophisticated pool of infrastructure investors on the planet. Of the 40 members of the GIIA, no less than eight are Canadian. The list includes CPP Investment Board, the Ontario Teachers, Brookfield, Alberta's AIMCo and Quebec's Caisse.

As the federal Liberals move forward with billions of dollars in planned infrastructure projects, it will be fascinating to see if the government can tap into the GIIA's deep pockets for funding. Because, to date, the domestic and international institutions putting a shoulder behind the organization and its international efforts have focused on investing in essential assets outside of Canada.

If there's a privately owned toll road, sewage system or transmission tower being built right now, chances are a GIIA member is paying the bills. Collectively, funds in this association hold more than $3.5-trillion in assets and have already committed approximately $400-billion to infrastructure.

As demographics steer ever-increasing amounts of cash into these funds, they are looking to increase their ownership of infrastructure, a reflection of the sector's relatively strong, stable long-term returns. And the funds are looking to governments as a source of deals. The size of the potential opportunity is mind-stretching, as experts such as the Organization for Economic Co-operation and Development project that $50-trillion (U.S.) in infrastructure investment is required worldwide by 2030.

Mr. Rose was refreshingly frank in discussing the challenges facing private sector funds as they try to acquire assets that have traditionally been owned and operated by governments. In an interview, he said that "many countries lack the investment climate needed to support the level of private infrastructure investment they require."

The goal at the GIIA is to change the climate, in a positive way, by convincing cash-strapped governments that private sector funds with liabilities that stretch out for generations are natural owners of infrastructure assets that will last for decades. A veteran of British privatizations as both a CIBC investment banker and senior civil servant, Mr. Rose said fund managers must respect the fact that political leaders will always make decisions with an eye to non-financial factors, including the timing of the next election, and "we can never take the politics out of infrastructure investments."

When it came to Canadian content, Mr. Rose was quick to praise the infrastructure financing investment expertise built up over many years at the major Canadian funds, along with the well-received partial privatization of Hydro One. He said Canadians are widely viewed as global leaders in infrastructure investing.

However, the major domestic funds have consistently invested in infrastructure outside this country, due to a lack of attractive opportunities at home. The Ontario Teachers, for example, had 44 per cent of its $168-billion (Canadian) portfolio invested in Canadian assets in 2015. But as part of its annual report, Teachers highlights that, in its $16-billion infrastructure portfolio, "the majority of assets are held outside of Canada, principally in the U.K., Europe, Chile, the U.S. and Australia."

As Ottawa launches a new round of infrastructure projects, while running impressive deficits, it may be time to reach out to domestic funds that have proven their skills in owning and operating infrastructure outside Canada.