New Transit Funding Sources

[Jonny5]

it may be a crown corp but it has the responsibility (and mandate) to maximize the returns to its depositors (31 pension funds). While it does have a bias to investments in Quebec, this bias is not at the expense of the primary mandate which is the returns. They will sacrifice geographic diversity in favour of supporting the Quebec economy but not returns.

Not exactly. Their mandate is to provide a return sufficient to meet the future liabilities of the participating plans, not to flat out maximize return. They are not a business. Some plans are not in any risk investments.

As for extracting profits from these projects....it has been reported that while the government will prioritize the projects....CDPQ can refuse any that they do not see as profitable.

More likely is that they can decline participation in any project where the profit is too low, or too low when risk is factored in. This is the basis of decision making of every business entity, except governments.

For some perspective....the returns have been averaging 10% overall in the 4 years leading up to the end of 2013 and over 13% in that year alone. Since they would have to have a balanced portfolio that would include a fairly significant amount of risk free/low risk assets (cash, government bonds, etc) that have much lower yields than this you can be certain that the target/hurdle rate for riskier investments would be in the 15 - 20% range.

That's some fantastical end-date bias in your return selection. You can't just pull a random rolling annualised return for a random year end and assume that is the target investment return of a whole portfolio of very diversified investments, 96% of which are not infrastructure. That's flat out bizarre thinking. And I would love to see the math of how you then decided that indicates they require a 15-20% return.

Like all pension funds, they use risk return models to determine whether to invest or not. They don't just find maximum possible return vehicles and go with it.

Again, back to my original post on the subject, this is nothing more than a privatization deal....and done on a sole sourced basis.

The Caisse is not building, designing, or operating this. They are just hiring people to do it, and they will 'maximize return' by an RFP process to get the lowest bidders for all three activities. It is still unclear to me the scenario where other pension plan partners, or even private equity partners would improve the deal.

 

[AlvinofDiaspar]

I am a little bit uncomfortable with the notion of any government giving a private pension fund (albeit one that is funded by public employees) exclusivity in financing of public infrastructure projects. The proximity of said fund to the government would make it especially difficult for it to say no to projects that might be considered government priority but have a below acceptable rate of return; conversely, sole-sourcing the financing of a public project could very well not be the most efficient outcome for the government either.

AoD

 

[TOareaFan]

@Jonny5 my "math" on estimating their investments was this "they have averaged 10% with a balanced portfolio that would include investments in in low/no risk investments like Bonds that have been yielding sub-4% returns for that period right up to ownership of real estate in major markets, equities and infrastructure investments.....sticking my thumb in the air and with a bit of portfolio knowledged I bet they are aiming at 15 - 20% for the riskier assets".

As you seem to want something more definitive than that (fair enough) I have looked at the linked page and see that over that same 4 year period and see that they have averaged 16.8% in their infrastructure portfolio.

https://www.lacaisse.com/en/results/returns/specialized-portfolio

 

[Jonny5]

@Jonny5 my "math" on estimating their investments was this "they have averaged 10% with a balanced portfolio that would include investments in in low/no risk investments like Bonds that have been yielding sub-4% returns for that period right up to ownership of real estate in major markets, equities and infrastructure investments.....sticking my thumb in the air and with a bit of portfolio knowledged I bet they are aiming at 15 - 20% for the riskier assets".

As you seem to want something more definitive than that (fair enough) I have looked at the linked page and see that over that same 4 year period and see that they have averaged 16.8% in their infrastructure portfolio.

https://www.lacaisse.com/en/results/returns/specialized-portfolio

So what? How does actual performance over a randomly selected, specific, and extremely short time-period indicate what they target for return on any given investment at all? If they had a negative return the four years ending 2008 do you think that means they target negative returns?

I also still don't understand the value additional pensions fund manager would create by lowering costs.

 

[TOareaFan]

So what? How does actual performance over a randomly selected, specific, and extremely short time-period indicate what they target for return on any given investment at all? If they had a negative return the four years ending 2008 do you think that means they target negative returns?

Your correct that it does not specifically show their target.......it shows the relative return of the infrastructure portfolio to the rest of the portfolio (btw...the random selection of that 4 years is just because for some reason that is the period they highlight in their 2013 report).

I would actually be surprised if their "target" for infrastructure was lower than 15-20%...but your correct that I don't (and can't) know what their actual target is.....do you have any insight to suggest it is lower than I think?

I also still don't understand the value additional pensions fund manager would create by lowering costs.

Because competition can sharpen pencils. If fund manager A has a target range of 15-20% and there is no competition for the deal....the deal can be structured to yield 20%......if fund B is competing to do the same deal perhaps it gets done at 15%.

 

[gweed123]

Absolutely something like this would be harder in Ontario, and for good reason. The ghostly spectre of the 407 deal hangs over the placing of public infrastructure into private hands in this province and should serve as a reminder of the risk involved in doing so - both the risk for the public, who will have to deal with private for-profit companies building/owning/operating their infrastructure, and for whichever government ropes the province into something like this (political risk).

Yes, the 407 deal will make Ontarians a lot more weary to this type of funding agreement. In principle though, I don't mind a pension fund building a piece of transit infrastructure and then owning the rights to it for a period of 30 years or so, as long as:

1) The line is fully integrated into the existing public transit system.
2) The fare price is determined by the transit agency, not the operator.
3) The line is built to the standards (vehicle type, capacity, design specs, etc) demanded by the transit agency. Basically, no skimping out (shorter platforms, etc) in order to save a buck or two.

Ottawa's LRT is being built on a 30 year design, build, maintain model. That's not really that far off.

 

[W. K. Lis]

It's not just Toronto having a funding problem. So it seems is Chicago. See this article on

[h=1]Metra, Pace, CTA falling behind in funding for equipment[/h]at this link.

Chicago transit agencies are falling behind its needed capital investments. A new report estimates that the CTA, Metra, and Pace will need to spend $36 billion over the next decade to catch up.

 

[denfromoakvillemilton]

It's not just Toronto having a funding problem. So it seems is Chicago. See this article on

[h=1]Metra, Pace, CTA falling behind in funding for equipment[/h]at this link.

Chicago is really trying to do everything to give Houston that third largest city in the US title these days. Smh.

 

[TOareaFan]

Well, there is $1.1B in the transportation kitty now....thanks, ironically, to the recovering(recovered?) auto industry.

http://www.cbc.ca/news/canada/toronto/general-motors-shares-unloaded-by-ontario-government-1.2945528

 

[W. K. Lis]

Well, there is $1.1B in the transportation kitty now....thanks, ironically, to the recovering(recovered?) auto industry.

http://www.cbc.ca/news/canada/toronto/general-motors-shares-unloaded-by-ontario-government-1.2945528

Why? When the province could buy a brewery, become part-owner of The Beer Store, and make even more revenue from that source?

 

[salsa]

Well, there is $1.1B in the transportation kitty now....thanks, ironically, to the recovering(recovered?) auto industry.

http://www.cbc.ca/news/canada/toronto/general-motors-shares-unloaded-by-ontario-government-1.2945528

The conservative trolls are out in full force in the comments section.

 

[ssiguy2]

Toronto and Metrolinx have studied potential revenue sources so are they actually going to implement any?


GO RER will never get off the ground if revenues have to rely 80% on fares. The fares will simply remain too high for the average person to make it a viable option. Even fare integration will cost the TTC and GO big money which neither has to spare so extra revenues have to come from somewhere.

I'm curious...........do the cities that are served by GO actually pay anything towards it's operations like standard transit?

 

[innsertnamehere]

Nope. 100% provincial operating costs.

They implemented a plan with $15 billion for transportation in Toronto this spring.. So not only have revenue tools been selected, they have been implemented.

 

[ssiguy2]

So Queen's Park will pay for all GO expansion and future frequency improvements?

Why isn't the GTAH contribute some of it's own money thru special taxes?

 

[timio]

I'm curious...........do the cities that are served by GO actually pay anything towards it's operations like standard transit?

Guelph and presumably KW had to pay for part of the capital costs of the expansion to Kitchener. [link]