Two Canadian pensions funds have invested in Pacifico Sur, a 309-kilometer Mexican toll road that is poised to benefit from increased regional trade as well as tourism-driven light traffic, underscoring the attractiveness of transportation assets in growth markets for long-term institutional investors.
The Canadian Pension Plan Investment Board and Ontario Teachers’ Pension Plan together purchased a 49 percent stake in CAGT, the toll road’s concessionaire, for 4.5 billion pesos ($238.0 million; €206.8 million). CPPIB will take a 29 percent interest and OTPP will take 20 percent, while IDEAL, an infrastructure developer listed on the Mexican Stock Exchange, will hold 51 percent. CAGT has 23 years remaining on its concession agreement, with the possibility of extending the term by an additional 30 years.
The pension funds could make a second payment of up to 3.1 billion pesos, the companies said in a joint statement. It was unclear why and under what conditions a second payment would be made and whether or not it would be in exchange for larger stakes or additional rights.
The asset’s toll revenues are expected to increase since Pacifico Sur acts as a critical link between the cities of Guadalajara and Tepic. In addition, it is expected to benefit from commercial transportation as inter-regional trade boosts the Mexican economy. Earlier this week, leaders from Mexico, Canada and the US announced an agreement to keep North America closely linked by trade.
Rodolfo Spielmann, CPPIB’s head of Latin America, told Infrastructure Investor that Mexico is “well-suited to continue growing its industries” as North American economies and value chains become more integrated.
“We’re very positive on Mexico for the medium to long term,” Spielmann said. “Mexico’s growing industries mean more vehicles on the road.”
CPPIB, which manages C$366.6 billion ($283.4 billion; €246.4 billion), invested in its first Mexican toll road two years ago, again alongside OTPP and IDEAL. That deal, for Arco Norte, was valued at around C$800 million, according to Spielmann. The latest investment may not be the last for this partnership. “We want to do more investments with them,” he said.
Trade and the movement of people is often correlated to economic activity, making transportation assets a mainstay for institutional investors seeking exposure to GDP-linked infrastructure. While transportation is considered a core infrastructure investment, with low risk and mostly single-digit returns, assets such as roads, railways and airports generate reliably steady cashflows.
Two large US institutional investors – the California Public Employees’ Retirement System and the Alaska Permanent Fund Corporation – which have infrastructure portfolios heavily weighted towards transportation, recently reported infrastructure returns that were outperforming other real asset classes.
CalPERS’ transportation investments, accounting for 46 percent of its $4.3 billion infrastructure portfolio, generated a 20.6 percent one-year return, while real estate returned 6.8 percent and real assets overall returned 8 percent. APFC’s $2.36 billion infrastructure portfolio, 41 percent of which is invested in the transportation sector, is returning 22.9 percent.