Liberals tap former pension fund CEO to help build new infrastructure bank

The man tapped to build an experimental agency to finance the construction of roads, bridges, and transit systems says the new infrastructure bank will help Canada better attract private dollars even as our closest neighbour promises a massive construction plan that relies heavily on private investment.

The international battle for private dollars to supplement public funds has become more heated as countries increasingly see modernizing infrastructure as a way to help their economies

A few have been successful in their quest, but many, like Canada, are still struggling to attract the right level of funding to help build the infrastructure that citizens use every day, said Jim Leech, the former head of one of Canada’s largest pension funds.

Among those countries is the United States, where President Donald Trump has talked of a $1 trillion spending plan over the next decade that includes more public-private partnerships to rebuild crumbling roads, bridges and highways, or the possibility of billions in tax credits for private investors who put their money into projects.

Leech, former head of the Ontario Teachers’ Pension Plan, said Trump’s proposal shouldn’t have a major effect on the new Canadian infrastructure bank, because the hurdles for attracting funds in the United States are just as great, if not greater, than in Canada.

The Liberals hope that large pension funds like the teachers’ plan will invest in the bank, which will use federal funds to attract private-sector dollars for major projects, possibly generating $4 to $5 in private funding for every $1 of federal money.

A report earlier this month from RBC Capital Markets showed that public and private pension funds in Canada have increasingly shifted their investments overseas, with the share of foreign equity sitting at around 15 per cent of assets, compared to 12 per cent of domestic equity.

“It always frustrated me and kind of dismayed me as a CEO at (the) teachers’ (pension plan) that we were investing in these attractive opportunities around the world and yet we could see that our own infrastructure was degrading or needed to be renewed,” said Leech, who is now a special adviser on the bank’s design.

“If we can create the environment, we can attract the Canadian pension plans and others from around the world to invest here.”

The Liberals plan to infuse the bank with $35 billion in funding to financially backstop projects, with the details of how it will work to be outlined in this year’s federal budget. Leech’s role will be to help design the proposed arm’s-length lending machine, guiding the bank’s implementation team and recruiting board members.

Pension plans have increasingly seen infrastructure projects that generate revenue as way to deliver steady, predictable returns that will also keep up with inflation, a key issue for plans that promise payouts that rise with the cost of living, Leech said.

He said the countries that have been the most successful at attracting private investment have, to varying degrees, created stable, predictable regulatory regimes and created ways to help pension plans navigate regulatory issues.

Leech said the bank would likely require financial expertise to help project proponents and investors package and structure deals, and figure out what projects are best suited to public money and which are better candidates for private dollars.

He said there would likely also need to be some kind of construction and development expertise, or at least access to it, and expertise in navigating government regulations.

Opposition parties and the parliamentary budget office have already raised concerns about the proposed bank, worried that taxpayers won’t receive enough information about the financial risks they are taking, or the potential impacts on user fees to repay investors.

“Potential investors have said projects need to be worth $500 million or more for them to invest,” said Conservative infrastructure critic Dianne Watts. “That’s a lot of risk to put on taxpayers for something that will only benefit large, urban centres,”