The head of

CPP Investments

is signalling that the $730-billion

Canada Pension Plan

fund is keen to invest in

nation-building infrastructure

and

energy projects

promised by Prime Minister

Mark Carney’s

government — if the projects offer scale, stability, predictability and transparency.

In a speech in Toronto on Monday, chief executive John Graham outlined a number of investments the fund already has at home, and said that if Ottawa and the provinces get the formula right for nation-building projects — aimed at reducing reliance on the United States — Canadian pensions won’t be the only ones to be lining up to invest.

“When Canada offers the right opportunities, we step in. These days we are looking to invest in nation-building projects: large scale infrastructure and energy systems,” he said. “I’ve been encouraged by what’s happening in Canada recently: policymakers of all political stripes, federally and provincially, working together to

unlock this country’s potential

.”

But while he said he has been fielding calls from international institutional investors over the past six months who are curious about investing in potential new opportunities in Canada, he also sounded a note of caution.

“Many global investors are eager to put capital to work in Canada. But here’s something I’ve learned from working with the world’s top investors: capital is fluid and mercenary. It will always flow to opportunities of least resistance.”

After his speech, Graham said the recipe for success would include making infrastructure at scale available to pension investors, such as ports and pipelines, with potential for expansion rather than upfront building risk. He said institutional investors, not governments, would need to be in the driver’s seat to ensure control over sustainable long-term returns.

“We see the blueprint around the world. This is what works,” he said. “This is what attracts capital. And then it’s just whether there’s a willingness to do it.”

Investments in existing infrastructure with expansion possibilities, such as

 
Trans Mountain Corp.

, would fit the bill.

The federal government purchased Trans Mountain in 2018 for $4.5 billion and funded an expansion that cost $34 billion, and is widely expected to sell it at some point.

“These are the type of opportunities we look at and look we think about — the investments we’re already in around the world,” Graham said. “Here in Canada, we like pipelines. We like oil and gas pipelines. We have Wolf Midstream (Inc.) in Alberta.”

He said he is optimistic that Canada’s political leaders can use the momentum to attract institutional money to infrastructure and energy  projects because CPP’s own history shows that political adversaries can put long-term national interests ahead of politically expedient ones.

The Canada Pension Plan Investment Board was created in 1997 when, faced with a demographic funding crisis, federal and provincial politicians agreed to convert the pay-as-you-go pension model of the 1960s to a pooled capital system to be invested by the professional management organization.

“I am confident they can do it, because they did it before in 1997 with the original pension reforms,” he said.

 

“Canada solved the pension affordability crisis … It shows what we can accomplish when we work together and put the long term first.”

About 12 per cent of the CPP fund is invested in Canada.

When the previous Liberal government pushed for Canadian pensions to invest more at home, CPP Pension officials pushed back, arguing that the CPP fund was “overweight” in Canada, given the size of the country’s contribution to the global GDP. There was also a widespread view that projects on offer by Canadian governments didn’t offer the size, scale, independence and risk profile that appeals to Canada’s globe-trotting institutional investors.

In his speech, Graham pointed to a handful of the CPP fund’s Canadian investments, noting that Canadians come across many in their daily lives, from fast food to energy and tech.

“If you drive Highway 407, eat at A&W, shop at Dollarama, or use Shopify’s platform, you’re touching companies we’ve invested in,” he said. “We have (also) supported this country’s largest energy producer,

Canadian Natural Resources

for over a decade. And we’re financing infrastructure of the future — like Cambridge’s new data centre (in Ontario in partnership with Deutsche Bank and others).”

  • Score Media insider trading settlement nets nearly $600,000 in penalties and disgorgement
  • Bank runs could be even more damaging to Canadian lenders as tensions with U.S. mount, report warns

He signalled that he is prepared to do more, so long as Canada gets the model right, and expressed optimism that Carney is assembling a team that has deep experience in capital markets and institutional investing — from Clerk of the Privy Council and former Caisse de Dépôt et placements du Québec CEO

Michael Sabia

to his chief of staff

Marc-André Blanchard, who also worked in a senior capacity at the Caisse.

“(They) understand how the model works,” he said, adding minister of energy and natural resources

Tim Hodgson

to the list.

“He understands, from his time on the PSP (public sector pension) board, from his time at Goldman (Sachs), how it works for investors, what works and what doesn’t,” Graham said.

He urged governments across Canada to showcase unity and coordination to help draw in capital to support

announced

and future nation-building projects that include upgrading and expanding ports, rail lines, pipelines, carbon capture and storage and wind energy capacity across the country.

“Those are exactly the kind of projects both foreign and domestic investors, including us, are ready to support,” he said. “Not because of rhetoric or emotional appeal (but) because capital will find its way to markets that work.”

In his speech, Graham said CPP Investments has cooled to U.S. public equities, which they deem too concentrated in a handful of technology companies, with the potential to expose the retirement fund to “unacceptable” risk.

“Right now, we are not chasing U.S. public equity markets,” he said.

However, that doesn’t mean the fund is pulling back from the United States overall, despite less predictability and more protectionist policies enacted by the current administration.

“At the end of the day, the U.S. is the largest, deepest market in the world, the deepest capital markets,” he said after his speech. “And if you want to pull back from the U.S., you’d have to ask, Where are you going to go? … We have to actively manage the U.S. portfolio so it doesn’t get too big, because it has done so well.”

• Email: bshecter@nationalpost.com