Steady state

Here’s a tip on how to become a successful reporter: find people like James Cowan to interview. Lasting long in the journalism game without people like him is tough.

So what kind of person is James Cowan? He has “a minute” to chat – then he’ll go on talking for more than a half an hour. He’ll claim to not be the best person to ask about something. That’s right before detailing the kind of prescient insight and priceless knowledge 99 percent of the people in his line of work would kill for. He doesn’t get out much—but seemingly has a rapport with everyone.

You get the picture. On a chill Friday morning in Toronto, Cowan, a managing director for fund manager Macquarie Infrastructure and Real Assets (MIRA) and a self-effacing professional, is taking on the role of point-man for the 2013 Infrastructure Investor Canada Roundtable. His company Macquarie is hosting the discussion at its Bay Street office in downtown Toronto, and Cowan arrives at the conference room early where the roundtable is being held to greet each participant: CFI Capital managing director David Bell; DIF managing director Paul Huebener; and Pension Fund Infrastructure Advisors principal Eric Melis.

Cowan, who joined Macquarie in 2000, has also taken care to kick off a sweeping discussion of the infrastructure investment industry in Canada. Canadian to the core, Cowan is unflinching in offering his bottom-line assessment of the country – not to mention the industry – that has sustained his livelihood.

“We’re all blessed to be in Canada,” says Cowan who, with Bell and Huebener, is a Canada native [Melis was born in the Netherlands]. “We have it way better here, than in the rest of the world, for infrastructure.”

Chest-beating patriotism doesn’t become Cowan, and he isn’t boasting. What is he is doing is expressing his gratitude. By the time he, Bell, Huebener and Melis are done offering their opinion on Canada – a country that has become a premier market for private investment in public infrastructure – arguing against his original sentiment would be difficult.


The rude health of the infrastructure industry in Canada is indicated by a proliferation of major pension funds such as Alberta Investment Management Corporation (AIMCo), Canada Pension Plan Investment Board (CPPIB), Caisse de dépôt et placement du Québec (La Caisse), Ontario Municipal Employees Retirement System (OMERS) and Ontario Teachers’ Pension Plan (OTPP), investing directly in infrastructure. Moreover, the fact that provincial governments such as Alberta or Ontario can set up localised public-private partnership (PPP; P3) authorities, is due in large part to the robust health of Canada itself.

As Bell, who joined CFI in 2002, points out, Canada – “essentially a de facto midmarket economy” – is also a strong economy in a country with a credit rating of AAA, a well-educated, wealthy populace (the average household income as of 2010 was C$65,000), and a federal government with a non-partisan approach to finance.

The economic, political and societal climate of the country has helped to facilitate what Bell terms “steady state” growth on a “province-by-province basis” for the asset class. Taking its cue from the UK Private Finance Initiative (PFI) model and, later, the embrace of investing private capital for public infrastructure in Australia, Canada has woven public-private infrastructure into its cultural fabric.

The commitment to privatise netted Canada a PPP milestone in 1999, when Ontario Highway 407, or 407 Express Toll Route (407 ETR) became the first-ever privately operated toll road in North America in a concession agreement with La Caisse, Cintra and SNC-Lavalin Group. (By 2011, CPPIB had become a 30 percent shareholder in 407 ETR.) Highway 407 is also the first fully electronically tolled road in the world.

But transportation infrastructure is only part of the P3 picture in Canada. Cowan recalls his indifference when outgoing Premier Dalton McGuinty applied alternative financing and procurement to a “challenging” healthcare initiative: hospital construction. Go for a bridge, or road, keep it simple, Cowan thought. Today, the hospital P3 is considered tried and tested. While privatising water and wastewater management could yet emerge as a trend, for Canada, building state-of-the-art infrastructure is essential for the economic growth and well-being of its populace.


“Canada is a resourced-based economy [abundant with agriculture, natural gas and oil, and mining], so [infrastructure] will be developed to facilitate the development and expansion of these resources,” says Huebener, a 20-year infrastructure veteran who joined DIF last October from Macquarie Group.

The contrast between the propagation of privately held infrastructure in Canada, compared to the relative dearth of – not to mention aversion to – private investment in public infrastructure south of the International Boundary, is admittedly perplexing to Huebener who, like his countrymen, is very aware of America.

“It’s surprising to me,” says Huebener, “when there is talk of taking something out of public ownership, and making it private in America, the resistance that can arise given the US is a very capitalistic country”.

Melis, who spent a decade with Borealis Infrastructure, the infrastructure investment arm of OMERS, before founding consultant Pension Fund Infrastructure Advisors last October, cites “political will” in the US, as well as bipartisanism in Washington, D.C.

Cowan stresses that, in Canada, “people go back and forth between working for the government and the finance sector all the time.

“As far as the P3 industry is concerned, the government – left, right, or centre – has accepted that [private investment in public infrastructure] has to proceed,” explains Cowan.

The private sector has, by the same token, “accepted that the government is a major player. There is no realisation that it is either good or bad. It just is what it is”.

Huebener also notes that Canada has established a P3 platform “on a provincial basis,” citing Partnerships BC, Alberta Infrastructure and Infrastructure Ontario. In the US, meanwhile, “there are 50…and 300 million people compared to 30 million here.”

“In the US, every PPP deal is different,” says Cowan. Huebener agrees: “There is a lot more process in the US at the end of the day. There is no single regulatory regime. You have regulation on a municipal, city and state level.”

“The mantra is that ‘the US market is breaking next year’ for the last five-year period,” notes Huebener. “Whether people like it or not, it will happen, on a state-by-state basis. You see it happening in Virginia, Texas and Michigan, etc. A lot of progress has been made, just more slowly than everyone else would like.”

“The unfortunate part,” shrugs Huebener, “is that usually there has to be a crisis to push it forward – a fiscal crisis to create the political will.”

Cowan and Huebener share a pet thesis on the US involving airport privatisation. Though Puerto Rico, a US territory, leased its Luis Muñoz Marín International Airport in a $2.5 billion deal with Highstar Capital and Grupo Aeroportuario del Sureste, no Stateside air field has been put in play.

“If Chicago could just get Midway International Airport done,” says Cowan, referring to the recent decision to revisit a failed lease of the second-busiest airport in the Windy City, “the US could privatise 10 a year.”


Born in the Netherlands and retaining a slight trace of a Dutch accent, Melis is apt to point out that the Netherlands’ APG and PGGM have followed the direct investment pension fund model entrenched in Canada. For infrastructure, the rationale is hard to argue against.

“A pension fund is a logical owner for an infrastructure asset,” insists Melis. “They have a long-term horizon and can have a life-cycle approach”.

The concept of having a pension fund as owner of a national or provincial infrastructure project has been embraced in federal and local government in Canada. Here, the “Crown corporation” or non-profit government company status bestowed on CPPIB, OTPP and the like, is widely credited with helping infrastructure investment in the country.

Unlike in the US, a Canadian pension fund can compensate its staff on a par with the private sector.

“To be honest, as much as it would be a good thing, that is a difference that I wouldn’t expect to change,” Cowan says. “Given the resistance against having a high-salaried government official or bringing in a high-price team.”

Melis marvels at the size of the US pension space, where public pensions alone control $3 trillion. TIAA-CREF is a rare case of a US pension which has directly invested in infrastructure with its ownership of Interstate 595 in Florida.

“You look at a US pension fund, and I find it surprising: the large size of the fund compared with the number of people working there,” Melis notes. “If they want to seriously invest in infrastructure, they need external help.”

“The pendulum might swing back here and there,” Cowan concedes. “You might see investment committees argue the cost of a third-party manager as opposed to hiring staff. But a US pension committee would argue its role is to pick and choose each manager, and that firing internally is harder than firing a manger. In Canada, a pension fund can hire the best and brightest.”

The best and brightest, in turn, are able to invest in infrastructure as a global market. “The Canadian pension fund infrastructure investors have gone from provincial, to national, to global,” says Melis. “[Investors] have gone where the opportunity is – they have become sophisticated.”

Bell supports that assessment. The CFI Infrastructure Opportunities fund is an $80 million infrastructure fund, which has completed equity and subordinated debt investments in a portfolio of Canadian, mid-market infrastructure projects and companies.

“The opportunity set is across Canada,” he says, adding that a fund must have a presence in a market before investing. “You have to have feet on the ground. You have to have people in the market who know people. You have to have a track record.”

“You can invest in the Czech Republic from New York or here, but sourcing the capital here and having people on the ground there is much better,” Cowan adds.

Huebener notes that Canadian pension fund capital is apt to follow other Canadian pension funds into a foreign market.

“After Teachers’ went to Chile, [CPPIB and AIMCo] followed,” he points out. “A pension fund investment committee is likely to take a lot of comfort in that.”

“After Teachers’ went to Chile, other Canadian pension funds and investors followed,” he points out. “A pension fund investment committee is likely to take a lot of comfort in that”.

Bell, Cowan, Huebener and Melis agree that the Canadian pension fund industry will continue to be a major investor in infrastructure internationally.

“The rest of the world is in need of cash,” Cowan says. “Cash is king. Canada will continue to be a source for major capital outflow.”


There is a misconception that, in Canada, a pension fund, having been enabled to invest directly, will unquestioningly plough its capital into whatever PPP its homeland has drawn up – a misconception Huebener is quick to dispel.

“The right project has to be created,” Huebener emphasises. “The government is competing for capital on a global basis.” Cowan agrees: “The government would like a pension fund to invest in a local project, but a fund has to do what’s in the best interest of its membership, not act for the good of society as a whole.”


David Bell, managing director, CFI Capital

Bell joined CFI Capital Inc. in 2002. He has 24 years of corporate finance and banking experience, including positions with Lehman Brothers and NM Rothschild & Sons where he provided M&A advisory and capital raising services to clients. Bell is responsible for managing the $80 million CFI Fund I and played a key role in originating, assessing, negotiating, structuring and closing the equity investments. While at Lehman, Bell advised AT&T Wireless with respect to a transaction involving Rogers Wireless and British Telecommunications. While at Rothschild, Bell advised Rogers Wireless on the C$1.4 billion sale of a 33% equity interest to AT&T and BT, Rogers Communications on the C$1 billion sale of Rogers Telecom to MetroNet, and the Province of Ontario with respect to the province’s educational broadcaster, TVOntario. Bell’s prior experience with other Canadian investment dealers includes various successful financing and advisory assignments. He also worked in Bank of Montreal’s corporate banking department early in his career.

James Cowan, managing director, Macquarie Infrastructure & Real Assets

Cowan joined Macquarie in January 2000 and early in 2011 joined Macquarie Infrastructure & Real Assets (MIRA) to lead the raising of capital in Canada for MIRA’s funds and transactions and to work with MIRA’s assets in Canada and the US. Previously, Cowan was managing director and head, private capital markets group for Macquarie Capital Markets Canada. Cowan is a director of several Macquarie companies, fund companies, portfolio companies and was formerly a director of Capstone Infrastructure Corporation (TSX: CSE). His previous work experience includes TD Securities and Hambros Bank in the areas of government and infrastructure finance, and a number of years at a leading insolvency and corporate restructuring practice where he had the opportunity to manage assets and operating companies across several industry sectors.

Paul Huebener, managing director, DIF

Huebener is a managing director at DIF. He joined DIF in 2012 and is responsible for the origination and execution of infrastructure and renewable energy transactions in North America. Prior to joining DIF, he worked for Macquarie Capital Advisors. At Macquarie, Huebener held various positions in Canada and Malaysia including head of power and utilities in Canada. He also worked for Fieldstone Private Capital Group and Bankers Trust Company. Huebener has experience in North America and Asia and has completed infrastructure, transportation and energy related transactions in Canada, the US, and Southeast Asia. He also worked as an engineer for an electric utility and for a manufacturer of cooling systems for power plants and commercial buildings.

Eric Melis, principal, Pension Fund Infrastructure Advisors

Melis is the founder of Pension Fund Infrastructure Advisors Inc., a firm dedicated to making direct infrastructure investments on behalf of pension plans that do not have an internal investment capability. Prior to PFIA, Melis worked at Borealis Infrastructure as vice president from 2002 to 2012. His focus was primarily on the energy and transportation sectors. Notable Borealis investments that Melis was involved with were the acquisitions of Associated British Ports and Express Pipeline Systems, where he served as director of the board and chairman of the audit committee. Melis has extensively worked on various other international transactions throughout the years, such as APRR and Sanef French toll roads, British Airport Authority (BAA) and Pennsylvania Turnpike.