Infrastructure assets are well suited for long-term investors such as pensions funds, yet unfamiliarity with the asset class prevents many pension funds from going down this investment path.
Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ) hopes to change that – by partnering with pension funds in key markets and sharing expertise through co-investments.
“One of the roles CDPQ plays is partnering with local pension funds to get them to invest alongside us in infrastructure projects,” Anita George, an executive vice president at the $235 billion pension fund, told AsianInvestor, in an interview last month.
George's role at Quebec-headquartered CDPQ centres on fostering strategic partnerships in growth markets.
Canada’s second-largest pension fund, which had about $12.3 billion invested in infrastructure assets as of December-end 2017, is known for making direct investments in infrastructure companies around the world. Assets held include ports, airports, highways, wind farms, public transit systems, as well as energy transportation and distribution networks.
In Asia, the sophisticated institutional investor is hoping to encourage more institutions to consider infrastructure investing by discussing and sharing knowledge about its experiences in the first instance.
In Latin America, for example, the Canadian fund has partnered with entities such as pension funds in other parts of the world and even launched joint investment platforms in countries such as Mexico.
Such investment platforms could also be developed in Asia in the longer term, although that is not currently under consideration for CDPQ.
Certainly, more institutions need to get involved in infrastructure investing in Asia, where many countries are in dire need of infrastructural upgrades.
Infrastructure-starved India, for instance, needs about $4.5 trillion of investment over the next 25 years to build up its roads, airports, ports, rail and power networks as well as other urban and rural infrastructure, according to the government’s 2017-2018 Economic Survey.
George, who is based in New Delhi, noted that there is at least $1 trillion sitting in the Indian pension system that could potentially be funnelled into infrastructure development. However, Indian pension funds are currently not allowed to invest in infrastructure projects directly.
“We have had a series of conversations with government officials [in India] and there seems to be strong interest [in understanding how pension funds can invest in infrastructure]. It isn’t something they have systematically considered,” she said.
“They invited us to give a presentation on how Canadian pension funds have been investing in infra and how India could transform its pension system to also do the same.”
It’s early days but the conversations look promising, she added, emphasising that the communication remains at the level of simply understanding the Canadian experience of investing in infra projects.
It has also has done this sort of this thing before, in Mexico. In 2015, it teamed up with a consortium of leading Mexican institutional investors, including three of its largest pension funds, to create a co-investment vehicle for infra projects in Mexico.
George noted that CDPQ has committed about $2 billion to that platform.
Through the platform, the Canadian pension fund and other institutional investors have backed road, telecommunication and renewable energy projects.
“We are hoping to do it [create an investment platform] in Colombia as well, where we expect to invest about $500 million to start with,” George added.
India, Mexico and Colombia, along with Brazil and China, are considered growth markets for CDPQ, accounting for 10.7% of its overall portfolio at the end of 2017, up from 6% in 2012.
“We took our time figuring out how we wanted to engage with growth markets,” George said, adding that the asset owner has only recently started building exposure to these markets.
The bulk of the fund’s infrastructure investments are in the US (31%) and Europe (26%) and Australia (21%). Growth markets accounted for 5% of the fund’s infrastructure investments at the end of 2017.
For CDPQ, renewable energy continues to be a key area as part of its 2017-2020 global drive to lift investment in low-carbon assets by $8 billion and to reduce its carbon footprint by 25% per dollar invested by 2025.
“We hope to grow our solar energy investments as well as invest in wind, hydro and other renewables,” George said.
Last week CDPQ upped its stake in Azure Power Global to 40%, by investing an additional $100 million in the Indian solar power generating company.
It also acquired a 40% stake for around $359 million in CLP India, which plans to invest in low-carbon sectors too. CLP India is a subsidiary of CLP Holdings, which is listed on the Hong Kong Stock Exchange.
“We already have renewable energy commitments in Mexico and are looking very carefully at opportunities in Brazil and Colombia,” she added.
*This story has been updated to reflect where Anita George is based as well as more accurately reflect the views of CDPQ.