Pension funds – the new frontier for P3 investment

As the second largest pool of capital in Canada, pension plans play a key role in funding infrastructure. Banks shy away from the long-term investments, preferring a quicker return on investment. That leaves pension funds as the next largest source of investment capital. But there is a very real danger that more and more pension money will be used to privatize public infrastructure. Even public pension fund managers are knocking on doors, looking for business.

One example is Borealis Funds Management Ltd., a subsidiary of the huge Ontario Municipal Employees Retirement System (OMERS), to which CUPE members are the major contributors. Borealis was formed specifically to participate in financing infrastructure assets with a start-up fund amounting to $100 million of the $30 billion OMERS fund. Borealis is not only a sponsor of the Canadian Council for Public-Private Partnerships, it has also provided financing for the P3 lease-back schools in Nova Scotia.

Borealis sees itself making a "constructive difference" by investing in roads, hospitals and schools neglected because government spending on public infrastructure has slowed down. But the projects it is taking on are furthering the privatization and dismantling of public services.

Another pension fund actively investing in private schemes for public infrastructure is the New Brunswick Investment Board, which invests for a number of pension plans. The board helped raise capital for the privatized New Brunswick toll highway — a project that has raised user fees, sold off a vital transportation link, cut jobs and is costing taxpayers millions.

Properly used, pension funds can play a positive role in helping finance public infrastructure. Through the purchase of government bonds, pension funds help build public infrastructure and services, protecting the public interest. Financing public infrastructure provides a good rate of return for pension plan members while at the same time assuring governments capital at reasonable rates.

A massive injection of investment in public infrastructure is urgently needed over the coming years. Governments at all levels are facing important decisions that will have consequences for decades to come. Without a renewed commitment by governments to reinvest in public infrastructure, Canada’s hard-won public assets will be sold off to the private sector or handed over to private interests to own or operate for decades.

Far from being a partnership, these deals are fundamentally imbalanced, with the private sector getting healthy returns in exchange for little or no risk. A true reckoning of all the hidden costs of private sector involvement in public services would tip the balance in favour of renewed public investment once and for all.