BC: How long has the Caisse been involved in infrastructure investments?
GG: We have been developing infrastructure products since 1994. However, we made our first major investment in this asset category in 1999, investing $375 million to build Highway 407 in the Toronto area.
After that, we invested in a variety of pipeline and powerhouse construction projects. Our infrastructure portfolio is currently worth about $1.5 billion, and we’re not finished yet.
BC: How does infrastructure compare to other investments?
GG: Infrastructure products are assets with a longterm horizon and a risk level that is low and easy to measure. They are an attractive option for pension fund managers because they balance out a portfolio. They often correlate with inflation and do not lose value over time, which means they normally grow with time.
BC: How do you determine risk levels?
GG: Different factors can affect risk, including regulations, political decisions, construction budget and timetable, the infrastructure’s consumption or inflows as the case may be and refinancing possibilities. Since infrastructure products are major financial levers, interest rates can also be a key factor in selecting this type of investment.
BC: What are the Caisse’s investment criteria?
GG: Apart from the expected return, it is absolutely essential that we work with strategic local partners, industrial or financial, on these projects. For example, if we invest in a project in Italy, we must have at least one or two Italian partners. Each of the partners has a role to play in order for the project to be a success.
BC: Where does infrastructure fit in, in the distribution of the Caisse’s assets?
GG: At present, this investment category accounts for about 10% to 11% of the Caisse’s assets. We hope to continue along these lines in the coming years.
BC: Does the Caisse have infrastructure investments around the world?
GG: Our investments are mainly in North America— that is, in Canada and the United States—and in the countries of the new European Union. We are not planning to invest elsewhere at the moment.
BC: What is the future of infrastructure products?
GG: For all sorts of reasons, certain governments and private groups prefer to divest themselves of assets instead of managing them. We can, accordingly, bid to fund the construction or upgrading of attractive projects.
We purchase assets for resale in smaller parts to pension funds that do not necessarily have the specialized teams to analyze different possible investment strategies. The infrastructure products thus become accessible to the pension funds through our involvement. It is our objective to increase our investments in this sector in the coming years.
Alexandre Daudelin is associate editor with Avantages, a sister publication of BENEFITS CANADA. Alexandre.daudelin@ avantage.rogers.com
