CPPIB and Ontario Teachers Co-Invest in $6B Toll Road Concession

The Canada Pension Plan Investment Board and Ontario Teachers' Pension Plan have each taken 30% stakes alongside Brookfield in a A$9.4 billion (US$6.0 billion) 99-year concession of an Australian toll road network, the parties confirmed on Monday. This significant investment marks one of the largest pension co-investments of the year, demonstrating the growing appetite of institutional investors for long-term, cash-yielding assets.

The deal is anchored by inflation-linked tariffs and a regulated traffic floor, providing a stable source of revenue for the investors. This structure is particularly attractive to pension funds, which require predictable cash flows to match their long-term liabilities. The Australian toll road network is considered one of Asia-Pacific's most stable cash-yield assets, making it an ideal fit for the investment strategies of CPPIB and Ontario Teachers'. By investing directly in this asset, the two Canadian funds can benefit from the steady cash flows and potential for long-term growth.

Both CPPIB and Ontario Teachers' have spent the better part of a decade building internal infrastructure teams designed to handle transactions of this scale. This strategic move is intended to reduce reliance on third-party general partner (GP) fees, which can compound to 200 basis points of net asset value (NAV) per annum. By investing directly, the pension funds can avoid these fees and retain more of the investment returns. The development of internal infrastructure teams has enabled CPPIB and Ontario Teachers' to take a more active role in sourcing and managing investments, allowing them to better align their portfolios with their long-term objectives.

A senior CPPIB executive noted that the transaction "is exactly the kind of long-duration asset our liability structure was designed for." This statement highlights the importance of liability-driven investing (LDI) for pension funds. By matching their assets with their liabilities, pension funds can ensure that they have sufficient resources to meet their future obligations. The 99-year concession of the Australian toll road network provides a long-duration asset that can help CPPIB and Ontario Teachers' match their liabilities and achieve their investment objectives.

The investment in the Australian toll road network is also a testament to the growing trend of pension funds investing in infrastructure assets. Infrastructure investments offer a number of attractive features, including stable cash flows, low correlation with other asset classes, and the potential for long-term growth. As pension funds continue to seek out investments that can help them meet their long-term objectives, infrastructure is likely to remain a key area of focus. The partnership between CPPIB, Ontario Teachers', and Brookfield demonstrates the ability of pension funds to collaborate with other investors to access large-scale infrastructure investments.

The scale of the investment is significant, with the A$9.4 billion concession representing one of the largest infrastructure investments in recent years. The fact that CPPIB and Ontario Teachers' have each taken 30% stakes alongside Brookfield demonstrates their commitment to the investment and their confidence in the potential for long-term returns. The investment is also a reflection of the strong relationship between the two Canadian pension funds and Brookfield, which has a proven track record of investing in infrastructure assets.

The Australian toll road network is a critical piece of infrastructure, providing a vital transportation link for commuters and businesses. The 99-year concession provides a long-term framework for the investors to manage and maintain the asset, ensuring that it continues to operate efficiently and effectively. The investment is expected to generate stable cash flows, which will be used to service the debt and provide returns to the investors. The potential for long-term growth is also significant, as the Australian economy continues to grow and the demand for transportation infrastructure increases.

The investment in the Australian toll road network is a prime example of how pension funds can work together with other investors to access large-scale infrastructure investments. The partnership between CPPIB, Ontario Teachers', and Brookfield demonstrates the ability of pension funds to collaborate and share expertise to achieve their investment objectives. As pension funds continue to seek out investments that can help them meet their long-term objectives, collaborations of this nature are likely to become more common. The investment in the Australian toll road network is a significant development in the infrastructure investment landscape, and it is likely to have a lasting impact on the way pension funds approach infrastructure investments.

In conclusion to this significant development, the investment in the Australian toll road network by CPPIB and Ontario Teachers' is a strategic move that aligns with their long-term objectives. The investment provides a stable source of cash flows, potential for long-term growth, and a strong partnership with Brookfield. As pension funds continue to evolve and adapt to the changing investment landscape, investments of this nature are likely to become more common. The ability of pension funds to invest directly in infrastructure assets, avoiding third-party GP fees, is a significant advantage that can help them achieve their investment objectives and meet their liabilities.