Airports give pensions giant a lift

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The outlook for the airline industry appears to be improving after a tumultuous decade, but for Quebec-based Caisse de Dépôts et Placements, Canada’s second biggest pension fund, one area linked to the industry continued to deliver even through the turmoil: international airports.

While most of us view airport terminals as mere stepping stones to important destinations, Macky Tall, the pension fund’s head of infrastructure investments, sees them through an investor’s keen eyes.

For Tall, buying into airport infrastructure meets all his long-term needs and makes up a significant portion of his portfolio.

‘What we look for are essential quality infrastructures that offer an important service to the population and by their strategic positioning give us a good outlook on their long-term return potential.’

Flying remains a key mode of transport across the globe, says the Tall, and as demand continues to grow so will the need for infrastructure. ‘The construction of new airports is rather rare these days for obvious reasons – every great city of the world already has one. ‘But these have to make regular and significant investments in order to maintain their infrastructure at adequate levels and to continue to improve services.’

The French Canadian pension fund manager was recently on a business trip to London and Heathrow is an ideal example to illustrate the benefits he sees in this area.

‘Since we invested in Heathrow a few years ago it has inaugurated Terminal 5 which was a multi-billion investment and since we bought in, it has made an investment above the billion pound mark each year.

‘All this expenditure has been to renew the capacity of the terminals and improve client services. Surveys reveal real advances in that area.’

As the world’s third busiest airport, Tall is keeping a close eye on developments regarding a potential third runway at Heathrow as it could mean another significant infrastructure investment. The pension fund is currently an investor in a host of other international airports located in Hamburg, Dusseldorf, Athens, Sydney and Budapest.

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Expanding interests

The Quebec pension fund has been investing in infrastructure for over 12 years, having made its first foray in the construction of Highway 407 in Toronto, one of the biggest ever privatised infrastructure projects in Canada’s history.

Since then the fund has steadily built its portfolio and over the last three years has doubled its infrastructure assets to reach over $6.5 billion – accounting for 4% of the group’s overall investment portfolio.

‘It is the will of Caisse and its clients to see the portfolio increase over the next few years,’ says Tall. ‘The reason is simple, the fundamental characteristics we find in the infrastructure sector fit well with the long-term return objectives of its clients.’

The energy sector is the other theme which dominates the pension fund’s infrastructure portfolio, says Tall. Similar to the group’s airport portfolio, its energy investments stretch beyond its borders. In Britain it is invested in Interconnector UK, an underwater gas pipeline
operator which supplies a strategic bi-directional link between the UK and European energy markets.

It is also invested in the Belgian natural gas company Fluxys. Closer to home it is a shareholder in Enbridge, a Canadian energy pipeline group, and is also invested in the Colonial Pipeline. Caisse is one of the top five biggest owners of this pipeline which links the Gulf of Mexico to North America’s east coast and transports around 16% of the US’ annual oil requirement.

The view ahead

The future of the infrastructure sector looks bright, says Tall. ‘Increasing numbers of investors are now interested in this sector. More capital is becoming available and demand and competition for quality investments will continue to grow.’

Tall is not too concerned about the growing competitiveness as he also believes opportunities will continue to emerge in the world’s largest cities in both developed and emerging countries.

‘In many cases these cities have old infrastructure set-ups that date back around 50 years and need to be renewed.

‘Local municipalities have to deal with very tight budgets these days and this creates opportunities for investors such as ourselves to contribute to these kinds of investments.

‘So there is more competition but also more opportunity and the challenge will be to see how we bridge these two realities.

The Caisse de Dépôts et Placements du Québec was founded more than 40 years ago and is the largest pension fund in Quebec, Canada’s second largest province. It runs the pension assets of 27 groups from both the public and private sectors. Clients include the region’s civil servants, private construction companies and auto insurance group Régie de l’Assurance de l’Automobile du Québec.