Moody’s Has Concerns About Quebec Pension Taking Over Public Infrastructure Projects

public transit

Caisse de dépôt et placement du Québec, Canada’s second-largest pension fund, recently reached an agreement to finance, execute and own the province’s new public transit projects.

Moody’s views the deal as a credit negative for the pension fund.

From Chief Investment Officer:

Rating agency Moody’s has outlined concerns it has over a C$4 billion (US$3.2 billion) public infrastructure deal signed by one of Canada’s provincial pension funds.


“Although the province is responsible for identifying projects of public interest and has the right to select projects on the basis of optimal solutions provided by the Caisse, the Caisse will be responsible for the execution of the selected projects,” Moody’s said in its latest credit outlook.

Moody’s clarified that the Caisse itself was not rated by its analysts, but the company created to carry out the projects—CDP Financial Inc—currently held an Aaa stable assessment from the agency.

The C$4 billion project is viewed as credit negative by Moody’s.

“The province could participate as an equity partner in projects, but will not have voting rights,” Moody’s said. “As a result, the pension fund will have greater exposure to operational and reputational risks associated with the performance of public infrastructure projects, risks that would have otherwise rested with the provincial government.”

The Caisse de dépôt et placement du Québec manages $214 billion in assets.


Photo by  Claire Brownlow via Flickr CC License

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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