The head of Canada Pension Plan Investment Board sees little opportunities in the country’s infrastructure projects -- or in other developed countries for that matter.

"We have benefited from the rise in valuations in infrastructure over the last 10, 12 years but it’s really hard now to get more money invested in developed-market infrastructure because everything’s priced to perfection," Mark Machin, chief executive officer of the $392 billion fund, said in an interview Wednesday in Toronto. "In most things we were outbid around the world."

There’s very little risk priced into the projects for regulatory or tax changes, Machin added. The few opportunities where the pension fund can be competitive is generally in relation to its current investments or something closely related.

One infrastructure project that might fit those parameters is Highway 407, north of Toronto, which has gained roughly 10 times in value since the government first sold it in 1999. CPPIB already has a 40 per cent stake in the highway but Machin declined to comment on the highway and whether it would match the $3 billion price that OMERS pension plan is paying for a 10 per cent slice from SNC-Lavalin Group Inc. CPPIB has the right of first refusal to bid, along with Ferrovial SA which has said it’s interested.

Roads, bridges and other major infrastructure is crumbling or in dire need of expansion in Group of Seven countries along with the developed world. Prime Minister Justin Trudeau’s government set up the Canada Infrastructure Bank to help tackle the country’s infrastructure deficit, an arm’s-length, government-financed lender tasked with investing up to $35 billion in projects in the country over the next decade alongside private-sector partners.

Private Markets

Many Canadian pension funds shy away from investing at home, saying projects are too small or not lucrative enough. The exception is the Caisse de Depot et Placement du Quebec, whose mandate also includes supporting economic growth and in Quebec and borrowed $1.28 billion from the infrastructure bank to help finance a light-rail network in the Montreal area.

CPPIB has moved further into private investments in its fiscal year ended March 31, including private equity and credit and infrastructure, which helped it add $32 billion to its assets.

"Our plan is that our real assets portfolio, our credit and fixed income portfolio will grow while public equities will continue to come down," Machin said.

CPPIB reported on Wednesday it had a 8.9 per cent return on investments for the last fiscal year, above the 6.6 per cent benchmark return CPPIB has created for comparative purposes. This incremental outperformance was worth $6.4 billion, Machin said.

Publicly traded equities represented 33 per cent of the portfolio, down from 39 per cent from the previous fiscal year. Private equity is now 24 per cent of the portfolio, up from 20 per cent from the previous year. Credit investments expanded to 9.1 per cent of the portfolio from 6.3 per cent the year before.

Trade Tensions

In its private equity portfolio, CPPIB reported returns of 5.7 per cent in Canada, 18 per cent in foreign equities and 11.8 per cent in emerging markets. Returns for global real assets included 6.4 per cent in real estate and 14 per cent in infrastructure.

CPPIB reduced Canadian equity holdings to 2 per cent of its asset mix from 2.4 per cent last year to make room for additional emerging market equities.

Machin said the best way to protect itself from the tensions from the U.S. and China trade war is by being broadly diversified.

"One of the challenges with the first and the second largest economies in the world going at each other is that it just generally reduces overall global growth and it has ripple effects across just about every major economy in the world," he said. "We’ll continue to increase our exposure in emerging markets, that’s the direction that we’re heading."

Still, there could be some indirect beneficiaries if China’s exports slow.

"Presumably Brazil should be a beneficiary of exports as some of China’s capacity is taken up, Machin said. "It’s going to be sort of indirect for us right now, it’s just going to be logistics, real estate, and we’ve looked at some of the food-related companies that would be big exporters, but we haven’t found the right opportunity yet."

After selling green bonds in both Canadian dollars and euros in the last fiscal year, the fund could opt for this instrument again to adjust its risk.

“The pricing for our green bonds was fantastic, we probably will do more because we’ll have more use for the money and the markets are surprisingly strong,” Machin said.