Taking it to the next level

“We haven’t fundamentally changed our strategy. We continue to be a direct investor,” asserts Macky Tall, who starting leading the infrastructure investment programme soon after La Caisse de dépôt et placement du Québec (La Caisse) officially launched it in 2003.

The strategy has paid off for La Caisse and its 32 public and private pension funds and other institutional investor clients, achieving double-digit returns – 16.8 percent to be exact – over a four-year period.

La Caisse has grown its infrastructure portfolio by about 40 percent within the past two years, reaching its previously announced target of C$10 billion (€7.1 billion; $8.0 billion). Representing about 4 percent of the pension fund manager’s total assets – which, as of June 30, 2014 stood at C$215 billion – its infrastructure portfolio is well on its way towards achieving the target allocation of 4.5 percent.

“We will continue to grow that portfolio quite significantly,” Tall, senior vice president of private equity and infrastructure, states in his soft-spoken manner which at the same time conveys confidence.

Originally from Mali, Tall settled down in Canada when he was 17. The son of a diplomat, he jokingly explains that his father’s career prepared him for travelling around the world, something he does frequently as he has been working for the past 10 years or so building La Caisse’s infrastructure portfolio.

As we sit in a conference room on a cold day in February, overlooking a snow-covered plaza outside La Caisse’s Montréal headquarters, Tall outlines his plans for continuing to build out the organisation’s infrastructure platform.


“Our approach to really go direct requires a lot of work. So we’ve increased and continue to increase the team further,” he explains. The aim is to increase the number of staff responsible for infrastructure from 26 currently to more than 40 within the next 18 to 24 months.

By expanding the team Tall is looking not only to grow the portfolio but also to diversify – both sectorally and geographically.

“Today, 45 percent of our portfolio is in Europe. We have another 15 to 20 percent in Australia and the balance is in North America,” he explains, adding that diversifying “means a bit more North America, a bit more Australia.”

From a sectoral perspective, energy comprises between 40 and 50 percent of La Caisse’s infrastructure portfolio. Key energy investments include: a controlling stake in Gaz Metro, the incumbent gas distribution network in Québec and in the state of Vermont, as well as the largest electricity distribution network in the US state; a 24.7 percent stake in Chicago-based wind power generation company Invenergy Wind; and a significant (undisclosed) stake in 18 wind farms in the US and Canada, which have a total generating capacity of 2,300 megawatts (MW) and are operated by Invenergy.

In addition to Invenergy, an investment realised in 2014, another partnership La Caisse established in the past year was with Denmark’s DONG Energy, through which La Caisse acquired a 25 percent stake in London Array, a 630MW offshore wind farm located in the UK’s Thames Estuary.

Other investments, outside the energy sector, include: a 26.7 percent stake in Australia’s Port of Brisbane; a 37.5 percent stake in UK water supply company South East Water; and stakes ranging from 19 to 39 percent across seven PPPs in Australia, including the Melbourne Convention Centre, in partnership with Plenary Group.

“As part of our strategy to diversify, we will be very open to a more economic type of infrastructure – such as transportation: toll roads, toll bridges and mass transit,” he says, and points to the US as a market offering “massive opportunity”.

“The US requires significant capital. They have major issues with bridges, with roads and not only in terms of repair and improvements but also replacing and procuring new ones.”

But there are other reasons why La Caisse views the US market with interest.

“One of them is that the macroeconomic picture is quite robust – compared to Europe, for example. The second is energy. The significant change with non-conventional oil and gas really shifting the US from a net importer to not only becoming self-sufficient but soon-to-be exporter is a tremendous change that is creating some interesting opportunities in midstream,” he explains.


While La Caisse has already invested in North America, it has now set its sights on markets it has yet to engage with. With the exception of Budapest Airport – in which La Caisse is an investor through its 40 percent stake in private investment company AviAlliance Capital – the organisation has not yet invested in emerging markets.

“We’re very serious about growth markets – not just in infrastructure but overall as an organisation,” Tall says. Leading that effort is Rashad Kaldany, previously chief operating officer of the International Finance Corporation (IFC), who in August 2013 was appointed executive vice president of emerging markets.

Kaldany has been building a team and developing an emerging markets strategy. “As part of that initiative, we have opened an office in Singapore; we have someone in Mexico and we’ll be adding people in India and eventually Brazil,” Tall clarifies.
He expects his team will work closely with Kaldany since emerging markets present a significant opportunity for infrastructure given those markets’ needs in both transport and energy assets. “Initially, we’ll be very focused in a handful of geographies, such as Mexico, India and Brazil,” says Tall.


But entering new markets is not the only exciting development unfolding at La Caisse. In January, the organisation announced an agreement it had struck with the government of Québec. Under the agreement, which requires a change in the law governing La Caisse by the National Assembly, the pension fund manager will execute major infrastructure projects. Tall describes this new model as complementary to other procurement models such as design-build and public-private partnerships (PPPs; P3s).

“Our agreement with the Québec government gives us a framework where we go one step further in the role in the sense that we are involved from the planning stage,” Tall says, explaining one of the key differences between this model and P3s.

The government will identify a project it considers necessary. La Caisse will determine whether it has an interest in taking on the project. If it fits its risk-return profile, then La Caisse will take on a leadership role from inception.
“Of course at that early stage, we interact with the government which continues to protect the public interest. They’ll identify the major objectives of the project and its key parameters,” Tall says, describing the process.

Once the objectives and criteria have been defined, La Caisse will be tasked with formulating several options for the government to choose from.

“If we get the green light we proceed to the execution phase, so we’ll go out and tender those projects through a competitive and transparent process,” he says, adding that an independent auditor will be hired to ensure transparency.
When tendering projects, La Caisse will seek turn-key solutions with a guaranteed completion date and a fixed price, according to Tall.

Once a project is completed, La Caisse will own the asset for many years during the operation phase. “Because we take on that leadership role throughout the process, contrary to the other two traditional procurement models (where the asset sits on the government balance sheet), in this case the impact on the government’s balance sheet is minimised, which is very significant for them,” Tall remarks.

This new model calls on La Caisse to operate in a very different capacity than it has to date.

“We’re going to go beyond our traditional role of investing in infrastructure as a financial investor. In the past, we were active on the board, in the governance [of a portfolio company] as a shareholder but in this case it would actually be taking a majority position in some of these projects.”

The new role will also require operational and technical expertise, which La Caisse will add with the launch of CDPQ Infra – a new subsidiary.

If and when the National Assembly approves the legislative amendments needed to implement this new business model, La Caisse will launch the new subsidiary.

“At that point, the focus will initially be to staff it with complementary expertise we don’t have within the team today to be able to undertake a project from inception to design, development, construction and operation,” Tall says.

CDPQ Infra will work closely with Tall’s infrastructure team, which will bring sector expertise, commercial and transaction structuring expertise to the subsidiary’s operational, technical and project management skill set.

“The subsidiary will have a scope that will go beyond the agreement but it’s the agreement that will really make the subsidiary happen and really give it its first objectives,” Tall comments.

This new partnership paves the way for what Michael Sabia, president and chief executive of La Caisse calls the ‘virtuous circle’. Given that La Caisse is a public entity that manages the pensions of three million Quebecers on behalf of its 32 clients, “effectively it’s their money that we’ll be putting to work providing them with strategic infrastructure assets,” Tall remarks. “We’re using their savings to provide them with projects from which they will benefit day-to-day but that will also remunerate their pensions in the long term.”

Asked whether his team will become part of CDPQ Infra, Tall replies: “Over time, it is possible we will further integrate the two. But we will have to go one step at a time, which involves setting it up, staffing it properly and successfully concluding the two projects that have been announced.”

A public transit system on Montréal’s new Champlain Bridge and a public transit system linking downtown Montréal to the Montréal-Trudeau International Airport and the West Island, with a combined estimated cost of C$5 billion, are the first two projects the Québec government has identified within the scope of the agreement.


Taking on projects from inception through to completion also implies exposure to construction and greenfield risk – two types of risk that pension funds have been known to avoid.

“Greenfield and construction risk is not something we have done significantly but it’s not the first time,” Tall says.
One example is the Canada Line project, a C$1.9 billion light rail project that links Vancouver Airport to downtown Vancouver. The project was not only completed on budget and three months ahead of schedule, it also exceeded the target volume of 100,000 passengers a day within the first three years of operation.

“That was achieved in less than six months and today we are running at 120,000 passengers a day,” he points out. “So it just confirms that when we are able to deliver quality infrastructure that is well tailored to the need of the population and people get to use that service, it meets that need but also results in a successful investment for us. At the end of the day, that’s our mandate – to make appropriate returns for our clients.”

Another example of La Caisse’s exposure to greenfield risk is the A$1.5 billion (€1.0 billion; $1.2 billion) Victoria Comprehensive Cancer Centre, a project developed in partnership with Plenary Group. A brand new hospital, it is also on time and on budget and one of numerous successful examples Tall can point to.

“The difference I guess is that in those projects we are one of two or three partners. In the case of CDPQ Infra, we’re still going to work with like-minded partners – that doesn’t change – but our role will increase,” he says.

As for construction risk, Tall says he is comfortable with it. “We would make sure to really go out in a very competitive and open process and seek out the best firms in the world with experience in executing similar projects, with solid balance sheets. They would undertake that responsibility under our leadership and under very clearly established contractual terms.”

While news of the agreement with the Québec government was very recent at the time of the interview, another Canadian pension fund manager had already volunteered some feedback, calling the agreement ‘seminal’ and an excellent example of a government-private sector partnership that bridges the communication gap between the public and private sector when it comes to infrastructure.

“You know that this is music to my ears,” Tall says, breaking into a hearty laugh and welcoming the positive comments.
However, one reservation that source also expressed was how this would apply in other provinces where there might not be a clear choice of a private sector partner as is the case of La Caisse in Québec.

Tall is undeterred. “I think it is applicable in other parts of the country,” he says and hopes to export the model not only to other parts of Canada but to neighbouring countries as well.

“We had to work for months with the government in precisely structuring the roles and responsibilities to achieve that off balance sheet outcome while the government maintains its key role of protecting the public interests,” he remarks.

Once CDPQ Infra is up and running successfully, it will have developed expertise Tall hopes to export.

“We will invite partners, which could be Canadian pension funds, to work alongside us. It could also be that we work with those partners in other provinces and work with the governments of those provinces to adapt the model to meet their specific needs,” he says.

“As you’ve seen, our approach in the infrastructure space has been a good approach. We’ve achieved good results and I see this opportunity with CDPQ Infra as really something that will help take us to the next level, but always as an evolution of what we’ve done so far,” Tall emphasises. “It’s very exciting times for us.”