Did you see the very interesting Insight piece by Paul Wells last Sunday in the Toronto Star? Entitled “Chasing Trillions to Build Billions in Infrastructure,” it described the efforts now underway by the Trudeau government to use private funds to help the Liberals fulfill their massive infrastructure promises.
Apparently, Finance Minister Bill Morneau and his Advisory Council on Economic Growth, appointed in March, are devising plans to encourage private pension plans and other large institutional investors to invest their billions of dollars for infrastructure projects. The Advisory Council includes Michael Sabia, former federal civil servant and current head of Quebec’s $250-billion pension fund, the Caisse de dépôt et placement du Québec, and Mark Wiseman, former head of the Canada Pension Plan Investment Board and now senior executive at BlackRock, the world’s largest asset manager. His company controls assets of $5 trillion.
These large institutional investors are frustrated by how their funds are languishing with historically low, or even negative, returns. To pay their pensioners and give their investors a better return on their funds, they need secure investments that will guarantee a reliable return which reflects actual, if reduced, global growth rates. The government needs funds to finance its infrastructure plans. In this communality of interest, there may be the means to achieve significant future action.
As Michael Sabia describes the proposal. there would be “an infrastructure bank funded in part by government capital.” Its mandate would be to design big infrastructure projects, or a “pipeline of projects,” to attract institutional investors from Canada and abroad. The object is to create a “multiplication impact” so that “every dollar of federal commitment triggers, say, four or five dollars from people like us.” The bank would require the authority and expertise “to structure and negotiate transactions in a highly expert way,” and the ability “to audit our national needs for infrastructure and… develop a national infrastructure plan.”
Already, a prototype “proof-of-concept” is underway. In 2015, the Quebec government changed the law to enable Sabia’s Caisse to create a subsidiary, CDPQ Infra, “to foster effective execution of major infrastructure projects.” In April 2016, CDPQ Infra announced plans for a $5.3 billion automated light-rail transit system with 24 stations on 67 kilometres of track west and south of Montreal and into the downtown core. As Wells says, “it would be the biggest transit project in Quebec in half a century.” The plan is for CDPQ Infra to put up $3 billion, and the federal and provincial governments to split the balance of $2.5 billion. This “mixed funding model” is to be matched with an “aggressive plan to generate profits through rider fares, paid parking and second-order private investment like commercial development at transit hubs.” The plan is to market this model worldwide to attract institutional investors and apply it to a range of infrastructure needs from transit to housing to electrical distribution, as Finance Minister Bill Morneau says, “to anything that we can find a way to appropriately create an opportunity for institutional investors.”
Wells reports that Justin Trudeau met BlackRock CEO Larry Fink at Davos, Switzerland, last January, and that on November 14th, BlackRock will host a day-long conference in Toronto where major international investors can consider the concept. Trudeau, Morneau, and Infrastructure Minister Amarjeet Sohi will speak at that event. In the meantime, a team of senior civil servants working under Serge Dupont, seconded temporarily to become deputy-clerk of the Privy Council (Canada’s second highest ranking civil servant), has been working on the issue with Trudeau’s senior policy analyst Michael McNair and other staff in the PM’s office. Apparently, the new public agency is tentatively called the “Canada Infrastructure and Investment Bank.”
Watch for further developments. This could prove very interesting. If you missed Paul Wells’ very informative analysis, you’ll find it on the Toronto Star’s website. It’s well worth the read.