BUSINESS

Large Canadian investors expected to continue bulking up on infrastructure

03/04/2015 03:08 EST | Updated 05/04/2015 05:59 EDT
MONTREAL - With stock markets volatile and interest rates at historic lows, institutional investors are turning to infrastructure deals, such as Quebec's Caisse de depot's $850-million investment in the Eurostar high-speed rail network Wednesday.

"It is an asset class that provides stable and predictable long-term returns," said Macky Tall, senior vice-president of private equity and infrastructure at the Caisse.

The pension fund's infrastructure investments in railways already include Vancouver's Canada Line and Keolis, a public transit operator based in France with operations in 15 countries.

Tall said the Caisse will continue to seek out additional infrastructure investments particularly in the United States as it aims to double its $10-billion infrastructure portfolio in a few years.

He said the fund remains interested in Australia, where it invested in the Port of Brisbane, and is also looking at a few deals in emerging countries such as Mexico. Potential targets include energy infrastructure, roads, bridges and rail.

But it remains cautious about Europe despite the Eurostar deal which he described as "a unique opportunity" to acquire a quality asset.

Under the deal Wednesday, the Caisse will acquire a 30 per cent stake in Eurostar from the British government, while its consortium partner, Britain's Hermes Infrastructure, will acquire the remaining 10 per cent being sold.

France's national railway company will continue to control 55 per cent of Eurostar and the Belgian equivalent will hold the remaining five per cent of the company which provides high-speed train service between London and the continent.

Despite the Caisse's caution towards Europe, there is an increasing pipeline of opportunities as governments unload investments and private companies sell non-core assets, said Frederic Bastien, a financial analyst at Raymond James.

He said Brookfield Infrastructure Partners has identified $50 billion of opportunities, including airports, toll roads, utilities, telecom and water, in countries like Spain that were hit hard by the financial crisis.

Former Caisse executive Michel Nadeau said infrastructure investments are a safe alternative to overpriced stocks and real estate assets.

He said large Canadian pension funds like OMERS, Canada Pension Plan Investment Board and the Ontario Teachers' Pension Plan are also interested in these type of investments because they help to diversify portfolios and generate cash flow in stable countries.

Analyst Maxim Sytchev of Dundee Capital Markets said there are many available investments in the world for ports, toll roads, bridges, airports and maturing public-private partnerships.

Among them is the Highway 407 toll road in Toronto. SNC-Lavalin (TSX:SNC) is considering selling its stake as it has already done with Alberta's electricity transmission service AltaLink and other concession investments.

Tall declined to say if the Caisse would be interested in Highway 407, but Nadeau doubts Tall would want to invest again in the toll road after selling its investment a few years ago.

"Personally, I think he will be reluctant to buy something where you don't know how to make more money... If you can't do better than the existing owner you are better not to buy."