National Column: Chasing trillions to build billions in infrastructure

Approaching the anniversary of his election, Justin Trudeau is ramping up efforts to recruit private money to help pay for his ambitious plans

by Paul Wells

Justin Trudeau had been prime minister for barely two months when he made his first visit to the World Economic Forum in Davos, a gaudy alpine day camp for zillionaires and Hollywood’s we-have-all-the-answers set. The skepticism that attended the young prime minister’s late nights with Bono and Kevin Spacey was healthy and natural.

Later, though, it became possible to draw interesting lines between Trudeau’s Davos dance card and some important announcements he made after returning home.

It was at Davos that Trudeau met Mary Barra, the chief executive officer of General Motors. Five months later in Oshawa, Trudeau was on hand when GM announced it will hire up to 750 engineers to develop self-driving cars.

At Davos, Trudeau met Thomson Reuters CEO Jim Smith. Nine months later in Toronto, the two
announced the company will build a Toronto technology centre with 400 new jobs over two years,
building perhaps to 1,500 jobs down the line. Smith himself will move from New York to Toronto, as will the company’s chief financial officer.

Five months after meeting Microsoft CEO Satya Nadella at Davos, Trudeau was in Vancouver to announce a new hub for the tech giant: 750 jobs, including 425 for Canadians, with the rest filled by foreign nationals who move to Vancouver.

Some of these deals were in the works long before Trudeau’s Liberals won the 2015 election, whose first anniversary is coming up on Oct. 19. Now, of course big companies make investment decisions all the time. History records coincidences more diligently than causes: we’ll never know whether these multinationals would have rediscovered Canada if Trudeau had not flown to the Alps to press the flesh.

But if nothing else it is becoming increasingly clear what Trudeau is trying to do: establish Canada as a global magnet for high-value international investors. The effort is taking more and more of his time. He has reorganized the bureaucracy to back him up. His most trusted cabinet ministers are on the case. The scale of the opportunity is vast – orders of magnitude beyond the announcements he’s made so far. And as the Trudeau government moves into its second year, it is preparing a series of announcements designed to take advantage of a rare opportunity for Canada.

One key player in the government’s new economic push is Finance Minister Bill Morneau. “My hope is that when we look back a decade from now and say, ëWhat are some of the things that the Trudeau government did that made a long-term difference,’ I think we’ll be able to say we’ve enhanced the long-term growth trajectory of the country,” Morneau said in an interview. The Liberals are working on a bunch of tried-and-true methods for doing that – boosting university research, seeking highly skilled immigrants – but that’s not what Morneau was talking about. The biggest lever available to the government is relatively new: “Finding a way to ensure investors make a big difference in the infrastructure deficit that we have.”

At a mid-October conference in Ottawa organized by the Public Policy Forum think tank, the situation was best described by Michael Sabia, the Mulroney-era civil servant and longtime business executive who is now head of the Caisse de dÈpÙt et placement du QuÈbec, the province’s $250-billion pension fund.

The Caisse, Sabia told the Ottawa audience, is in a bit of a fix. It has promised to pay out millions of people’s pensions and retirement plans in a few decades. It’s having a hard time finding investment vehicles that can guarantee the long-term growth rates that will make that possible. And it’s not alone.

“When we look at the world today we see a reasonably grey picture,” Sabia said. “Global growth may be in the range of, say, 3 per cent for the foreseeable future. To put that in context, the IMF used to call 3-per-cent global growth a recession; they’ve changed that recently. So we’re in a position of tepid global growth.”

There are all kinds of reasons for that chronically lower growth, Sabia said, from demographics to the tapering off, at least for now, of the productivity gains that came from mass adoption of information technologies.

Whatever the causes, it makes life interesting for someone who wants to make hundreds of billions of dollars grow steadily in value. “You know, the world I live in every day is completely upside down,” Sabia said. Around the world, “There’s $16 trillion today invested in negative-yielding bonds. In other words, there’s $16 trillion hanging around where the investors actually pay the government to take their money.”

That’s a lot of money. A trillion is a thousand times a billion. A billion is a thousand times a million. Sixteen trillion dollars is within spitting distance of the total size of the economy of the United States. That’s the amount of money that is currently being invested in guaranteed losses, because nobody dares to believe in guaranteed gains.

“Now, every morning when I wake up, here’s the problem I face,” Sabia said. “For the last five years, stocks used to yield about 10 per cent. Over the next five, maybe five. Fixed-income bonds, they used to earn five to six, they now earn one to two. So what are you gonna do? Well, you have to, in order to pay people’s pensions, you’ve got to find some returns.”

This is not only the Quebec pension fund’s problem. It’s the world’s. “This is happening on a massive scale around the world. So investors like us are looking for opportunities to invest in things like infrastructure.

Why infrastructure? Because it provides pretty steady returns, and there’s very low risk of capital loss.”

So that’s the story of the money looking for a home. In rundown highways, decrepit power grids, teeming populations desperate to get to work, the world offers no end of places the money could go.

“There are huge infrastructure gaps in the world,” Sabia said. “The McKinsey Global Institute said there’s a $57-trillion gap over the next 15 years in global infrastructure needs, between what governments can do and what’s needed. A ridiculously large number.”

Infrastructure deficits are, to some extent, a matter of opinion. The gap between the roads and trains and bridges and power grids we have and the ones we might need could be as small as $200 billion, as large as $1 trillion. Big numbers. That’s got to get addressed,” Sabia said. “And it’s got to get addressed because we need that infrastructure, because it’s so important to how we function as an economy. It is a critical driver of productivity. It makes the economy flow.”

You see where this is heading. On one hand, a vast global capital pool invested at low-growth, no-growth or give-it-back rates of return. On the other, governments that would easily, if they only could, spend far more than they can raise through taxes.

Perhaps this would be a good time to note that Sabia is a member of the Advisory Council on Economic Growth that Morneau appointed in March. The panel’s chairman is Dominic Barton, the global managing director of McKinsey and Co. Its mandate is to figure out how to boost Canada’s economic growth rate so everyone can be richer and, not incidentally, so Trudeau’s government can afford to pay for everything he has promised to do.

Sabia is not the only person on the panel calling for major spending on infrastructure, funded not only by federal tax dollars, but by the world’s largest institutional investors. Mark Wiseman was head of the Canada Pension Plan Investment Board when he joined Morneau’s advisory council. He has since become a senior executive at Blackrock, the world’s largest asset manager, with $5 trillion in assets.

Writing about this stuff, for the first time in a quarter-century in journalism, I’m getting used to typing the world “trillion.”

In what we should by now recognize as a familiar sign, Trudeau met Wiseman’s new boss, Blackrock CEO Larry Fink, in January at Davos. Here he was chasing bigger game than in his meetings with the corporate CEOs. For while it is excellent news when GE and Microsoft and Thomson Reuters move hundreds of jobs to Canada – especially when, taken together, their investments build the case for Canada as a magnet for some of the world’s most highly skilled employees – Blackrock is one of the few entities in the world with pockets deeper even than those Sabia manages at the Caisse.

And on Nov. 14 in Toronto, Blackrock will play host to a group of major international investors for a day-long conference to test Canada’s ability to put their vast fortunes to good use. Trudeau will address the investors, as will Morneau and Trudeau’s infrastructure minister, Amarjeet Sohi.

The tempo of activity on this file in Ottawa has accelerated in recent weeks. Trudeau assigned a group of senior civil servants from across the government to figure out how to attract money from the world’s biggest institutional investors and put it to good use. The ginger group is led by Serge Dupont, a former deputy minister of natural resources who returned in March from an overseas posting to become deputy clerk of the Privy Council, the second-ranking job in the entire public service.

Dupont’s assignment is temporary. Morneau, Sohi and staffers in Trudeau’s office, led by his senior policy adviser Mike McNair, working to establish a new public agency whose working title is the “Canada Infrastructure and Investment Bank.” It was originally going to be announced in next year’s federal budget. Now, if it can be ready in time, it has been pencilled in as the main announcement of Morneau’s fall economic update, which should land within a few weeks of Blackrock’s big day in Toronto.

The file is accelerating so audibly in Trudeau’s Ottawa that the Public Policy Forum sped up the publication of a report calling for the creation of an infrastructure bank, for fear that Morneau would announce it before the think tank could demand it.

Because Sabia is one of the people who has been pushing this project, we’ll let him describe it. Here he is again from his remarks to the Ottawa growth conference.

“Here in Canada we need to think boldly. Not in typically incremental Canadian, ëLet’s try and see what happens, and then we’ll check what the Americans are doing’ (fashion). Because that’s a waste of time. We are so far ahead of the Americans in infrastructure, in how we think about it, that it’s a joke. They’re in the rear-view mirror.

“One of the things I’d do is I’d create an infrastructure bank. And I’d have that bank funded in part by government capital. And I’d give it a mandate that involves two or three things. First, to design big infrastructure projects in a way that attract people like us.” Meaning pension funds with hundreds of billions of dollars in assets. “So that every dollar of federal commitment triggers, say, four or five dollars from people like us. So you get this tremendous multiplication impact of what can be done.

“Two, I’d give this organization, this new bank, the opportunity to structure and negotiate transactions in a highly expert way, because this is a technically complex area. And finally I’d create inside that bank what I call a national centre of excellence, where you assemble the expertise that’s required to audit our national needs for infrastructure and on that basis develop a national infrastructure plan.”

Morneau is cagey about details, but he sounds like his plans follow Sabia’s recommendations closely. “My hope is that we can invest a dollar of federal money and multiply that five or six times – by having provincial and municipal investments, and also have other investments from institutional investors.” “Institutional investors” is a term of art for pension funds, asset managers, titanic investment portfolios both in Canada and overseas.

On the design of an infrastructure bank, Morneau said: “I think you’ll see that our approach will deal with the political risk that institutional investors see.” The government is looking at ways to set up a “pipeline of projects,” so that instead of a one-time adventure on Canadian soil, investors can make “a long-term commitment.”

What kind of projects are possible? Here again, Sabia is ahead of the game. In 2015 the Quebec
government amended the law regulating the Caisse to allow it to set up a subsidiary, CDPQ Infra. The group’s website says it exists “to foster effective execution of major infrastructure projects.” CDPQ Infra wasted approximately zero time twiddling its thumbs: in April it announced plans for a $5.3-billion automated light-rail network around Montreal. The rail system would serve 24 stations, most of them new, around 67 kilometres of track, stretching west and south of Montreal and into the downtown MÈtro grid. It would be the biggest transit project in Quebec in half a century.

The Caisse is willing to put up $3 billion of its own investors’ money. Sabia hopes the federal and Quebec governments will split the other $2.5 billion. For Sabia, the rail system is “proof of concept.” He hopes to generate and market projects around the world based on the proposed rail system’s mixed funding model, along with its aggressive plan to generate profits through rider fares, paid parking and second-order private investment like commercial development at transit hubs. Already a private developer, Devimco Inc., hopes to build a $1-billion commercial and residential neighbourhood around one of the Caisse transit stops in Brossard, on Montreal’s south shore.

Morneau calls the project “a very good example of the kinds of opportunities that we would see as possible.” Public transit isn’t the only such opportunity, he said. “It could be in transit, it could be in housing, electricity distribution, in anything that we can find a way to appropriately create an opportunity for institutional investors.”

No end of pitfalls will stalk the government as it pursues these opportunities. Trudeau’s government is not the first to notice the community of interest between investors looking to park their money and governments looking to multiply their infrastructure dollars. But it would be the first to succeed on a large scale if it does.

The common ground could collapse if both sides can’t agree on specific projects. Citizens could balk at some of the mechanisms for raising money. Toll highways, to say the least, haven’t been popular.

But in a period of global economic doldrums, when the supply of available money outstrips the demand in quantities that are hard to comprehend, Trudeau is hurrying to find ways to connect the two.

As one of his advisers says, “We just don’t know how long this will last.”

Key data points

$16 trillion Currently invested in negative-yielding bonds worldwide, which could be put to better use.

$57 trillion The gap by 2030 in global infrastructure needs (what governments can do vs. what will be needed), as estimated by McKinsey Global Institute.

$1 trillion Upper estimate of Canada’s infrastructure gap

$5 trillion Assets of Blackrock Inc., the world’s largest asset manager He has since become a senior executive at Blackrock, the world’s largest asset manager, with $5 trillion in assets.

12 Number of zeroes in a trillion

$250 billion Assets of the Caisse de dÈpÙt et placement du QuÈbec, the province’s pension fund

How it would work?


The Liberals have promised $120 billion for infrastructure over the next decade. Instead of dribbling the money out slowly, a big chunk of it would capitalize a new infrastructure agency.


Large institutional investors, like pension funds, would invest in the bank. They could choose to partner on individual projects, or to buy into a “pipeline of projects” the way individuals invest in mutual funds.


Much of the risk would be assumed by the federal government.


Finance Minister Bill Morneau told the Star that investors are usually looking to write “nine-figure cheques,” which means hundreds of millions of dollars.


It depends. On energy and electricity infrastructure, it could be fees for use. On new roads and bridges it could be tolls, plus a chance to build offices, residential developments and paid parking lots along new routes.


Not everything a government needs to do or build will attract private investors. There have been impressive one-off projects, but systematic use of private investors has so far been more of a dream than a reality around the world.

Copyright 2016-Torstar Syndication Services

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