Trans Mountain discussions limited so far: CPPIB head

While an investment bank that provides advisory services to the federal government has approached the Canada Pension Plan Investment Board about the Trans Mountain pipeline, the fund hasn’t faced political pressure to invest in it, the CPPIB’s chief executive officer told a House of Commons committee on Monday.

Speaking before the finance committee on Monday, the CPPIB’s Mark Machin addressed the Trans Mountain issue in response to a question from Ontario Conservative MP Pierre Poilievre. “We have not taken on any confidential information, and we have not gone into any detailed discussion,” said Machin, who noted the investment bank, Greenhill & Co., had approached the CPPIB about the pipeline. But Machin, who believes Greenhill has also approached many other domestic and international funds about the issue, said no member of the federal Liberal government had contacted the CPPIB about the pipeline.

“Obviously, we have an obligation to investigate and assess any major investment opportunity that comes along,” said Machin, noting the CPPIB hasn’t begun any financial analysis of the assets related to the pipeline.

The comments follow Finance Minister Bill Morneau’s recent suggestions that pension plans could be among investors interested in the Trans Mountain project. Last month, the federal government announced it was buying the project for $4.5 billion amid efforts to ensure the completion of an expansion plan, which has faced major opposition from some Indigenous groups, environmental organizations and the B.C. government.

Read: Trans Mountain deal highlights questions around infrastructure investments

On the topic of infrastructure more broadly, B.C. Conservative MP Dan Albas asked about whether, in its current state of maturity, the Canada Infrastructure Bank is of interest to the CPPIB. Machin replied that there’s a lack of cost-effective opportunities to invest in Canadian and even global infrastructure projects. “One of the things that we are hopeful about is that, if the infrastructure bank gets up and running effectively . . . it will increase the pipeline of size opportunities that are available for investors like us,” he said, adding that for an infrastructure investment to be of interest, it would have to be worth at least $500 million.

Indeed, the global investment environment is a very difficult one, Machin told the committee.

“Competition for investments continues to be strong. There is a glut of capital with, in essence, more money chasing fewer opportunities. The lengthy bull market in stocks, growing demand for private assets, low yields on income-oriented investments and high valuations on infrastructure are some examples.”

The CPPIB’s advantages in such a tricky environment become all the more important, said Machin, citing its long-term investment horizon, the fund’s size, the predictability of its assets, its approach to portfolio management and its global reputation and brand.

As a result, the CPPIB needs to continue to be picky about where it puts its cash, Machin told the committee. “The businesses that we invest in need to be able to preserve their value through cycles and achieve growth in the longer term,” he said.

Read: Former CPPIB exec named Canada Infrastructure Bank CEO

“The businesses we are buying should also be able to withstand or benefit from disruption. This does not mean rushing to invest in the latest innovations [but] rather instead thoughtfully studying how disruptors might affect the assets we like today in the decades to come. For example, what will autonomous vehicles mean for toll roads that we own today or for parking lots? These are the types of questions we continue to examine.”

In an ever-changing landscape, Machin noted the fund does expect returns to be modest at times. “We’re not trying to beat the market every year. We’re looking to add value over decades.

“Our strategy aims to deliver steady, absolute, long-term returns over time through significant upswings and corrections. I continually remind our stakeholders that we fully expect that one year in 10, the fund would drop by at least 12.5 per cent.”

Machin also made note of the upcoming 2019 enhancements to the Canada Pension Plan. Noting the CPPIB has begun preparing for the additional influx of cash, Machin described the efforts to handle it as “firmly on track.”

Read: CPPIB posts 11.6% return for 2018 fiscal year

In addition, Machin stressed that the CPPIB must adapt to changes in the asset management industry. “Our investing strategy will become more agile so that we can seize opportunities and continue to be more resilient as we face a number of forces whose price outcomes remain uncertain, whether it’s global growth trajectories, technological disruption, geopolitical forces or climate change,” he said.

During the questioning, Northwest Territories Liberal MP Michael McLeod noted the CPPIB’s success in achieving gender parity on its board. McLeod asked what other efforts were underway to boost diversity even further.

“We are a meritocracy. We have to be a meritocracy to compete internationally, but we do believe there is a value in having some target,” Machin replied.

The CPPIB does have targets to boost visible minorities at the more senior levels of the organization, Machin noted. However, there’s no current target to increase the number of Indigenous Canadians either on staff overall or in more senior positions, he added.

“It’s something that we should look at over the next year or so, so that the next time that I come here I shall have a crisper answer for you.”

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