A disconnect between how governments and pension funds conduct business could delay capital allocations to urgent infrastructure projects, says Sebastien Betermier, associate professor of finance at the Desautels Faculty of Management at McGill University.
“Our own funds have been very active, but most of our infrastructure assets here in Canada, governments own most of them, so there’s a big infrastructure gap. In general, [there’s] little collaboration between government and pension funds on infrastructure projects.”
He adds pension funds are looking for partnerships that create long-term stability with bilateral consensus on key projects, requiring governments to be open to new approaches that can attract capital from domestic pension funds but also from institutional investors around the world.
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The International Centre for Pension Management, of which Betermier is executive director, published a new report outlining the need for a positive investment landscape to advance the federal government’s push for nation-building infrastructure projects — which could be completed through governments creating a stable macroeconomic, legal and regulatory environment with lower cost of capital and that fosters long-term partnerships with institutional investors.
“As governments worldwide face infrastructure funding gaps measured in the trillions, the choice is clear: either build the collaborative frameworks that enable lower cost of capital and greater private sector participation or accept that infrastructure development will remain chronically underfunded,” the report said.
Last month, the feds unveiled a lineup of nation-building projects and a new arm, the Major Projects Office, designed to fast-track these projects through regulatory assessments and engaging financing structures with provinces, territories, Indigenous Peoples and private investors.
According to the ICPM’s report, pension funds are important sources of long-term capital for infrastructure and other real assets but investment in these sectors haven’t reached their full potential.
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Despite the emphasis on Canadian infrastructure investment opportunities — coming off the heels of years-long discussions on whether pension funds have a responsibility to invest more in Canada — Betermier says this is a global issue.
“You can tell there’s a disconnect in the way governments think of investments and the way pension funds are looking at their own investments, . . . we’re not even having a conversation, we’re having two different discussions that aren’t being aligned,” he says.
Betermier is encouraged by the creation of the Major Projects Office and views this current landscape as a once-in-a-lifetime opportunity to create the right alignment with an understanding of how pension funds’ investment decisions function.
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