By Emily Holbrook

Global infrastructure investments among Canadian pension plans have become increasingly popular. Canada Pension Plan Investment Board (CPPIB), one of Canada’s largest pension funds, started aggressively investing in infrastructure in 2019. It was then that the Board announced an investment of up to $600 million in the National Investment and Infrastructure Fund of India.

Others Join In

Ontario Municipal Employees Retirement System (OMERS) is also targeting infrastructure. OMERS was among the many Canadian pension funds that met with German chancellor Olaf Scholz over the summer to discuss potential infrastructure investments in Germany. OMERS Infrastructure, the infrastructure investing arm of the pension fund, has already acquired the provider of fiber-optic networks Deutsche Glasfaser; Amedes, a provider of medical diagnostic services for patients; VTG, a private rail freight leasing company; and Tank & Rast, the parent company of fuel stations, service stations, restaurants, and hotels.

Caisse de dépôt et placement du Québec (CDPQ), with $392 billion of net assets, has also shown more interest in global infrastructure investments. A spokesperson for the pension fund said, “We focus on tangible assets that can generate stable and predictable investment income over the long term while protecting our capital from inflation. With our subsidiary, CDPQ Infra, we seek to create more value by developing and operating infrastructure projects.”

The spokesperson said the fund would like to invest more in Germany, with a particular focus on infrastructure and infrastructure financing teams that will address the broader energy transition so it can generate growth while contributing to a more sustainable world.

It’s clear CDPQ is not alone. Many fund managers see investments in infrastructure as a way to secure stable—and socially sustainable—returns in an unstable economy.

U.S. pension funds are under-allocating to infrastructure compared with their Canadian or Australian peers. According to Preqin, total investments allocated to infrastructure by U.S. pension funds that disclose their allocation were $68 billion, which represents 1.1% of their total AUM. In contrast, Australian superannuation funds allocate 7% and Canadian pension funds allocate the highest percentage to infrastructure: 8.4% of AUM.

Case in Point: CDPQ

CDPQ says it sees infrastructure investments playing a large role in its investment strategy for years to come. “These investments represent our constructive capital approach where we operate with a constructive mindset because it is the best and safest path to the steady, reliable returns that long-term capital needs,” the spokesperson noted.

CDPQ says it invests in structuring projects that contribute to the population’s well-being. The fund leverages its financial capacity and expertise to develop forward-looking projects, with a focus not only in the infrastructure space, but also on the real estate and renewable energy spaces.

Over the last few years, infrastructure has become popular with investors as an asset class due to its attractive risk-return profile. Its defensive stance was also highly sought-after in the uncertain environment of 2021, which was characterized by inflationary pressures and an outlook of rising interest rates.

In 2021, CDPQ’s infrastructure team pursued rigorous and sustained capital deployment, with more than $11 billion invested or committed around the world. These activities were focused on the telecommunications and passenger and goods transportation sectors. According to CDPQ, those specific transactions included:

  • ATC Europe: Investment of over €1.6 billion for a 30% interest in this portfolio of telecommunications towers, as part of a new partnership with American Tower covering Europe
  • FiBrasil: Creation of a joint venture specialized in deploying and operating fiber-optic networks in Brazil, held in equal parts with the Telefónica group (with CDPQ investing up to $408 million)
  • WestConnex: AU$2.3 billion for a 10% stake in Australia’s largest road infrastructure project
  • Ermewa: Acquisition, alongside DWS, of this European leader in railcars leasing and the global leader in tank containers leasing

Infrastructure investments by pension funds can be a win-win for all sides, helping to fund projects that have the potential to increase worker productivity and, down the line, GDP growth, while providing dependable returns in a rollercoaster, macro-economic environment.

Emily Holbrook serves as owner and head content creator at Red Label Writing LLC, a content studio that collaborates primarily with the insurance and financial services sectors.