Canadian Newspaper: Quebec Pension Infrastructure Plan in Novel, But Won’t Lead to “Optimal Returns”

Canada’s second largest pension fund struck a deal with Quebec this week to take over the province’s new public transit projects.

Under an agreement reached between the Caisse de dépôt et placement du Québec and the Quebec government, the pension fund will finance and own the province’s new public transit projects.

The editorial board of the National Post, a Canadian newspaper, weighed in on the arrangement on Thursday.

The Post thought that the idea was a novel one, and good for the province – but it may not produce optimal returns, and that might be bad news for pensioners.

The Post writes:

The structure of the deal is certainly novel.

But who is kidding whom? Handing off responsibility for funding and managing public infrastructure projects to a truly arms-length body, with genuine autonomy to decide which projects to accept and which to reject, would indeed be a promising development, with the potential to depoliticize public works, traditionally a cesspool of patronage and pork even outside Quebec. By the same token, were the Caisse truly an independent pension plan, focused solely on its beneficiaries’ welfare, there might well be projects in the government’s portfolio it might wish to invest in.

[…]

Uniquely among public pension plans, the Caisse labours under a dual mandate — to “achieve an optimal return” for pensioners while also “contributing to Québec’s economic development.” It has long been seen as an informal arm of the government, contributing to the “nation-building” aspirations of past administrations. Which is to say, the “optimal return” to pensioners has often taken a back seat to politicians’ grandiose fantasies.

[…]

This might be highly advantageous to the government. The advantage is not so clear for the pensioner. Actively managed investment funds tend to underperform the market average as it is, without being force-fed a diet of public works projects. Workers dragooned into financing the public plan might well earn more were they permitted to invest the funds themselves.

The details of the Ontario plan are still being finalized. Given the financial straits the Liberals find themselves in, its putative beneficiaries should keep a close watch on the process. Public pension plans are meant to benefit those who paid for them, not the governments that created them.

The Caisse de dépôt et placement du Québec manages $214 billion in assets and is Canada’s second largest pension fund.

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