Prime Minister Mark Carney and senior members of his cabinet are attempting to unlock billions of dollars of investment required to get shovels in the ground.AMBER BRACKEN/The Canadian Press
Ottawa has a to-do list of projects to rebuild the country’s infrastructure, a new office to clear roadblocks standing in the way and a newfound sense of urgency. Now it needs to attract the money – and lots of it.
Some of the world’s largest institutional investors, in Canada and abroad, are showing interest in backing ambitious projects that the federal government promises to prioritize. That includes Canada’s largest pension funds: the Maple 8 that collectively manage $2.5-trillion.
They are among a select group of investors that can write the multibillion-dollar cheques that breathe life into big-ticket projects. But simply having capital at hand doesn’t assure that major global investors will line up to back every proposal Ottawa singles out.
The Globe and Mail spoke to a dozen top executives at major pension funds and global asset managers, and they showed a mix of optimism and apprehension about the coming chances to invest in Canada.
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More opportunities to invest than ever before
Even with deep experience in infrastructure and energy, some institutional investors are hesitant to take the risk of backing greenfield construction projects that are starting from scratch, because of the tendency of those projects to run into delays and go over budget. Others said sectors such as mining and defence aren’t a natural fit for their investing strategies. And all of them are waiting to see the fine details financing arrangements that make or break the case for an investment.
The Globe is not naming some of those sources so that they could speak candidly about sensitive discussions with governments.
For years, leaders from Maple 8 have lamented that there are too few chances to invest in large-scale infrastructure in Canada, even as business executives and finance ministers are increasingly urging them to do more domestically.
Now, the federal government is explicitly calling for private capital to get involved and looking for ways to make investing in Canada more attractive. Prime Minister Mark Carney and senior members of his cabinet know the government needs to do more to unlock tens of billions of dollars of investment required to get shovels in the ground.
“I think historically we haven’t seen as much of those opportunities, particularly with the national-level commitment, as we would have liked,” Annesley Wallace, chief executive officer of the Healthcare of Ontario Pension Plan, said at a Canadian Club Toronto event last week. “And so the recent announcements around the major projects, I think, are very exciting.”
Then, she added a caveat: “It’s the first step. There’s a long way to go in terms of being able to advance these projects.”
Annesley Wallace, CEO of Healthcare of Ontario Pension Plan.Galit Rodan/The Globe and Mail
Talks between pension funds and the government are in early stages and have tested interest in different types of projects, rather than pressing funds to make firm commitments. One of the first federal cabinet ministers to reach out to pension fund CEOs was Energy Minister Tim Hodgson, a newcomer recruited by Mr. Carney who previously served on the boards of Ontario Teachers’ Pension Plan and Public Sector Pension Investment Board.
“The current dialogue and willingness to act is happening at the highest level,” Blake Hutcheson, CEO of Ontario Municipal Employees Retirement System, said in a statement. “We remain genuinely optimistic. The conversations are serious, and the mutually beneficial intent is clear.”
So far, Canada’s largest pension funds are largely absent from the first five projects the government earmarked for fast-tracking, which are already under way. The government has also announced a second set of strategies that includes critical minerals and high-speed rail. Some pension funds signalled that their investments in prioritized projects would likely be in a later tranche of announcements.
“This is an all-hands-on-deck moment for Canada, and there is a real opportunity to make meaningful progress on nation-building projects,” Mr. Hutcheson said.
Barriers pension funds face
But there are still hurdles in the way.
Though pension fund CEOs are keen to be cornerstone investors in Canada, their bottom line hasn’t changed: They must look for the best investments returns for members without taking too much risk, anywhere in the world.
Not all the projects Ottawa is considering are a natural fit for pension funds or other major investors. And though CEOs welcome a faster path to approvals for projects, some are wary of being seen as sidestepping Indigenous consultation and consent.
Building entirely new infrastructure isn’t necessarily off limits. Ms. Wallace said HOOPP “might have more appetite to participate in greenfield projects than others.”
And the Caisse de dépôt et placement du Québec has an infrastructure subsidiary that is building the Réseau express métropolitain light-rail system in Montreal, and is part of a consortium helping develop the Alto high-speed rail project from Quebec City to Toronto, which is in the running to join Ottawa’s fast-track list.
The Réseau express métropolitain train as it heads out of the city in Montreal.Christinne Muschi/The Canadian Press
Guarded interest in defence spending
Most of the time, however, major infrastructure investors prefer established assets such as toll roads, airports and utilities that already have cash flows and contracts in place.
Pension funds will likely deem the mining projects on Ottawa’s preliminary list as too speculative or risky. And plans to revamp and expand ports are drawing mixed reactions. Some pension plans already hold investments in ports and terminal operators in Canada, the United States and Britain. But ports are becoming a harder sell because they are sensitive to swings in economic growth, and to tariffs and trade.
The defence sector is another thorny patch for global investors. It is heavy on manufacturing and technology, often from startups or mid-sized companies that may not be large enough to attract large institutional investments. Large public companies such as Bombardier Inc. already count pension funds as backers.
Industry Minister Mélanie Joly has said the Business Development Bank of Canada, a Crown corporation that supports small and medium-sized businesses, could lead the way on financing the defence sector, and hopes that banks and pension funds would then join in.
Mr. Hutcheson of OMERS said at a May event that Canada needs to “show up” on defence spending, but other CEOs have shown only guarded interest. Ontario Teachers’ CEO Jo Taylor said the pension plan could invest ”selectively" in the sector, in an interview earlier this year.
As defence companies borrow money to ramp up their operations, private credit could be part of the answer. Large asset managers and pension funds now make tens of billions of dollars of direct loans to businesses, which are now a mainstream alternative to bank loans.
Investing in ports is becoming a harder sell because they are sensitive to tariffs and trade.Christopher Katsarov/The Canadian Press
On the same page as Ottawa
Other projects look more symbiotic. Large investors and governments appear to be on the same page about the need to build more housing. And the major funds already have extensive holdings in energy infrastructure, liquefied natural gas, oil pipelines and energy transmission lines, all of which feature prominently in Ottawa’s plans.
This week, CPPIB put up US$3-billion as part of a US$10-billion investment in North American pipeline and energy company Sempra Infrastructure, led by New York-based asset manager KKR & Co. Inc.
In Canada, KKR has made significant investments in natural gas, LNG, pipelines and power transmission. Last year, it bought a $1.19-billion stake in the Labrador Island Link, a 1,100-kilometre high-voltage transmission line that delivers renewable power to Canada’s East Coast.
“We’ve done that under the prior government, and with the Prime Minister’s push, we think that should only create more opportunity to do more,” KKR partner and head of North American infrastructure Brandon Freiman said in an interview earlier this month. “But we’re doing this with a 10-, 20-, 30-year view.”
Ottawa’s draft list of 32 potential projects in sectors such as transportation, oil and gas, carbon capture and storage, as well as LNG has caught large U.S.-based investors’ attention.
“We’ve invested across virtually all of those sectors, so I think with the right partner, the right risk profile, the right structure, all of that is within scope,” Mr. Freiman said.
But each project has to meet the underwriting test for long-term investments, and there will be competition for dollars from Europe, which is similarly ramping up spending on infrastructure and defence.
An LNG carrier ship is docked at LNG Canada's export facility in Kitimat, B.C.Jesse Winter/Reuters
Carney, Brookfield and conflicts of interest
One obvious candidate to invest would be Brookfield Asset Management Ltd.BAM-T, which has US$1-trillion of assets, a track record in infrastructure, energy and real estate, and deep roots in Canada with an executive team led by Canadian CEO Bruce Flatt. But Brookfield is also Mr. Carney’s former employer.
Since he entered politics, opponents have attacked Mr. Carney over perceived conflicts of interest from his financial interest in Brookfield. Even though Mr. Carney set up a conflict-of-interest screen with the federal Ethics Commissioner that includes Brookfield, the optics of the company investing in projects that are fast-tracked by the federal government are fraught.
Mr. Carney’s career as a central banker, investment banker and investor gave him a keen understanding of what makes money flow, and he has credibility with leading CEOs around the world. But Canada’s reputation as a destination where well-intentioned investment plans stall too often needs to change.
Mr. Hodgson, the Energy Minister, has talked about the need to “provide investor certainty” to unlock private-sector investment.
Ultimately, one key to unlocking billions of dollars of support for Ottawa’s nation-building ambitions will be in the technical, project-level discussions that have yet to take place. Another could be Ottawa’s willingness to use its own money and influence to help burnish the business case for investors.
The new Major Projects Office, led by veteran energy executive Dawn Farrell, was set up to co-ordinate private-sector financing with money from government initiatives such as the Canada Infrastructure Bank and the Canada Growth Fund. Those agencies were set up to absorb some of the early risk in projects so the private sector would feel more comfortable investing.
“As per its mandate, the MPO has been in communication with several investors, here in Canada and abroad, to work towards helping to structure financing for major projects,” a spokesperson for the Privy Council Office, Pierre Cuguen, said in an e-mailed statement. “While it is too early to comment on the scope of the discussions, we have received positive feedback from investors, who view greater certainty and efficiency in the federal approval process as helpful factors in their investment decisions.”
HOOPP’s Ms. Wallace, who was formerly global head of infrastructure at OMERS, said she “spent many, many years talking to all levels of government about how we can actually advance infrastructure projects, because it always feels like everyone wants the projects but we just can’t quite get them over the next line,” speaking to reporters last week.
“Hopefully starting with the national support for a focused list of projects will allow us to actually, as a country, be able to move the projects ahead,” she said. “And I think for HOOPP, given where our portfolio is positioned today, that’d be something we would be very interested in pursuing.”