Trudeau's win could help Canadian infrastructure investing, supplemental plans

The Oct. 19 victory by the Liberal Party in Canadian national elections could be a boost for infrastructure investments as well as a boon for a potential supplement to the country's national pension plan.

The win that ushered in Justin Trudeau as the country's new prime minister also created a clear Liberal majority in the Canadian Parliament. That will help advance the party's agenda that includes C$10 billion ($7.74 billion) annually for infrastructure work in the country and a willingness to discuss supplementing the C$268.8 billion Canada Pension Plan, Ottawa — the latter an issue that was opposed by the outgoing Conservative government under Stephen Harper.

“There's lots to talk about,” Kathleen Wynne, Ontario premier and Liberal Party member, said the day following the election, citing infrastructure and retirement issues, as well as a December climate change conference in Paris.

Infrastructure will provide a “big opportunity” for pension fund investment under a Liberal government, said Scott McEvoy, partner, securities and capital markets group, at the law firm of Borden Ladner Gervais LLP, Toronto. The Liberal Party “pledged C$10 billion a year in infrastructure funding whether there's a deficit or not. That, I think, marked a big changing point in the election. That resonated in cities where infrastructure is falling apart. Roads and bridges in places like Toronto and Montreal are falling apart.

“The philosophical debate during the election centered around a move to discredit lowering the deficit and cutting spending, which ended up feeding a change among Canadians that the government needs to pump money back into the system and fix the infrastructure that badly needs it.”

Mr. McEvoy said it isn't just large public plans looking at this, but in his firm's practice, which represents money management firms, “clients are seeing a huge appetite for infrastructure investments. That will continue to gain momentum.”

Despite the monetary commitment announced by the Liberals, there will be a lot of details to be worked out before institutional investment in new infrastructure can be made, said Keith Ambachtsheer, president, KPA Advisory Services Ltd., Toronto.

Instead of investing in existing infrastructure like airports and toll roads, “the challenge will be that they're now talking about infrastructure that doesn't exist yet,” Mr. Ambachtsheer said. “A lot of the risk is in the developmental aspect of it. Who will bear that developmental risk? What needs sorting out is to what degree pension funds will get involved in development and management.”

The C$225.9 billion Caisse de Depot et Placement du Quebec, Montreal, which manages pension and other provincial assets, already invests in Quebec infrastructure projects through CDPQ Infra, a subsidiary launched in July to develop and manage provincial infrastructure assets. “I see other (Canadian) pension funds wanting to do the same thing in the country,” Mr. Ambachtsheer said. “What that would mean for other pension funds,” like those in the U.S. that would be interested in infrastructure, “we'll have to wait and see.”

He said the C$154.4 billion Ontario Teachers' Pension Plan, C$72 billion Ontario Municipal Employees' Retirement System and the Canada Pension Plan Investment Board, which manages CPP's assets, are able to do such investments, as are the Alberta and British Columbia investment management corporations that run those provinces' assets. “They're all closer to these kinds of things” than non-Canadian plans, Mr. Ambachtsheer said. “It's more a question of the degree of risk and their own experience in this area. Canadian funds are well placed to do this.”

Added Janet Rabovsky, senior investment consultant at Towers Watson & Co., Toronto, “the devil is in the details” on the Liberal Party's infrastructure plans.

“How will it be implemented?” Ms. Rabovsky asked. “There's no doubt if spending occurs that it will be an economic driver,” she said, adding there are estimates that the program could add 0.1% to 0.3% to Canadian GDP. Also, for her pension fund clients, anything to increase the infrastructure equity available for investment “would be welcome. They would love to see more equity available. The debt is generally provided by insurers and banks, which can serve as a good part of a (liability-driven investment) strategy. You get 200 basis points over Canadian government debt. But how long will it take to get started? You have to get the program in place, you have to offer and price the equity and debt. That takes time, and it's too soon to see how that will evolve.”

Still, the Liberals' win makes such infrastructure investment more likely, and it also boosts the chance for a CPP supplement that's offered nationally. The Liberal government “will change the conversation” on retirement coverage “from a provincial one to a national one,” said Mr. Ambachtsheer, who served on an advisory committee for the creation of the Ontario Retirement Pension Plan, a supplemental retirement plan slated to go into effect in the province in January 2017.

He said Ontario will move ahead with the ORPP, “but with the recognition that when the time comes, the government will go to what can we do to increase coverage nationally.”

Jeff Kissack, senior consulting actuary at Towers Watson in Toronto, said that while it would appear the ORPP eventually would be eliminated by a national CPP supplement, “I don't think that's the slam dunk everyone thinks it is.” He said a national plan would require the approval of seven of 10 provinces representing two-thirds of the Canadian population, would have to be created before the planned start of ORPP in 2017, and would have to be comparable to what the ORPP is offering in terms of benefits and contributions. Otherwise, Ontario probably would maintain its own supplemental plan.

Ron Olsen, a Toronto-based senior vice president and consulting actuary at The Segal Group, said based on Mr. Trudeau's statements during the campaign, he clearly intends to expand the benefits of the CPP. “My expectation is we will likely see a higher earnings cap,” Mr. Olsen said. The current maximum pensionable salary is C$53,600 annually.

Ms. Wynne said on Oct. 20 that the work on ORPP would continue. “We will continue to implement because we can't stop,” she said. “There's a time commitment that we have made to the people of Ontario.”

Reporter Rob Kozlowski contributed to this story.