Canada's pension funds warm to federal infrastructure investment

Wed Jul 6, 2016 2:36pm EDT
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By Matt Scuffham

TORONTO (Reuters) - Canada's biggest pension funds are prepared to finance the construction of major new federal government infrastructure projects, according to senior fund sources, marking a shift from their traditional strategy of avoiding development risk.

Officials with the top funds, which manage C$1.1 trillion ($846 billion) in assets, are seeking to reduce that risk, telling the Canadian government they would like it to provide guarantees on future returns and assurances on costs.

"We think we can create incremental value by taking on the 'greenfield' risk of building the assets," a senior executive at one of Canada's three biggest public pension funds told Reuters, speaking on condition of anonymity due to the sensitivity of the talks.

Canadian funds have traditionally preferred buying 'brownfield' assets that have already been built and have predictable revenue streams, rather than take on potentially higher risk from 'greenfield' assets that have yet to be built.

But like their global peers, the Canadian funds face an increasing challenge in finding assets that generate adequate returns.

"'Greenfield' does come with a different kind of risk than 'brownfield' but it's a source of value and, by doing it, you're less susceptible to this rollercoaster ride of what's going on in the equity markets," the executive said.

Canada's Liberal government was elected last year pledging to spend billions on infrastructure such as public transport, affordable housing or renewable energy to help stimulate the economy.

Reuters reported in February that the government had opened talks with the funds about investing in the projects, the details of which have yet to be revealed.   Continued...

People work at a bridge under construction in Toronto February 20, 2014. Picture taken February 20. REUTERS/Aaron Harris