One of Canada’s biggest public pension funds, Québec’s CDPQ, has added a 50% stake in a Montréal road and bridge concession to its growing portfolio of domestic, province-oriented real assets, affirming its leading role in the country’s infrastructure space.
The transaction values the 7.2km toll network at C$710 million (US$530 million) and represents the second major partnership between CDPQ and Transurban, one of the world’s largest operators in the sector, following the fund's 2021 investment in WestConnex, Australia’s largest road infrastructure project.
It is still comes nowhere near CDPQ’s biggest investment in Québec’s infrastructure: a 70% equity stake in the Réseau Express Métropolitain (REM) project in Montréal, a 67-km, light rail, high-frequency network, worth C$2.95 billion at the close of financing in August 2018. Initial operations are due to start this year.
The Canada Pension Plan Investment Board (CPP Investments) made the biggest PPF investment in Canadian road infrastructure in 2019, acquiring 10% equity stake of 407 International, which holds a concession over the 108km 407 Express Toll Route (407 ETR) in Ontario for C$3 billion. It first invested in 407 International in 2010, when it acquired control of a 40% holding in the business through two separate transactions.
Canadian PPFs have prioritized roads, which comprise 32% of total investment value, followed by oil and gas infrastructure (28%), utilities (17%), transportation (13%), renewables (9%), and timberlands (1%).
Canadian public pension funds have invested around US$15 billion in Canadian infrastructure since 2012, of which around a third has been invested by CDPQ targeting the home province, Québec. The second biggest state-owned investor, representing over a quarter of the total, is Alberta Investment Management Corporation (AIMCo), which invests on behalf of 31 pension, endowment and government funds including the province’s SWF, Alberta Heritage Savings Trust Fund, and 368,000 public sector employees. The federal-level public pension fund CPP Investments, Canada’s biggest, represents just 20% of the total Canadian PPF commitment to national infrastructure.
Infrastructure also allows state-owned investors an opportunity to add value to assets and expand portfolios. In an increasingly uncertain environment of lower growth and higher inflation, infrastructure is an attractive sector of investment as it is a tangible asset which retains a residual value. At the same time, it provides a predictable long-term cashflow that chimes with the inter-generational horizon of state-owned investors.
Canadian PPFs may well look increasingly at domestic infrastructure with their superior ability to originate deals in the domestic market. The only barrier is the lack of opportunities, but that may recede in renewables as wind, solar, tidal and hydro power projects come to the fore, resonating with these funds’ net zero ambitions. At present, AIMCo is the leading Canadian PPF in the segment, although it is Canada’s sixth biggest PPF by assets under management. If the likes of CPP Investments and CDPQ weigh into the sector, they could provide a major boost to Canada’s energy transition.