CDPQ's Macky Tall on Building Sustainable Infrastructure

Macky Tall, Head of Real Assets and Private Equity at CDPQ and President & CEO of CDPQ Infra, recently discussed remodeling infrastructure financing in the latest edition of Voices from the Global Infrastructure Initiative:

Mass public transit remains a crucial component of city planning and development, even in a post-COVID-19 era. Consistent city-wide traffic and the pursuit of carbon-neutral alternatives favor the development of public transit options. However, too many governments struggle to finance such projects, especially large ones. That’s where institutional investors are increasingly stepping in. In Quebec, CDPQ Infra is in the middle of delivering Réseau express métropolitain (REM)—the CAD $6.5 billion, all-electric, largest public-transportation network in half a century—which will interconnect multiple communities as well as the business center with the Montreal–Trudeau International Airport.

CDPQ Infra is a subsidiary of Caisse de dépôt et placement du Québec (CDPQ), an institutional investor that has been investing in infrastructure, including transit, around the world for more than 20 years. In this interview, Macky Tall, head of Real Assets and Private Equity at CDPQ and CEO of CDPQ Infra, discusses how the right business model can create win–win solutions for public and private partners as well as local citizens.

McKinsey: Why is CDPQ interested in infrastructure, and what challenge is CDPQ Infra trying to help solve?

Macky Tall: Investing in infrastructure means investing in tangible assets that generate stable and predictable returns—which is aligned with our clients’ long-term needs. With CDPQ Infra, our model dedicated to the execution of major public infrastructure projects, our vision is to be a trusted partner for governments around the world as they try to solve their infrastructure challenges. Many governments today are heavily indebted. They either won’t or can’t invest in the major projects—like public transit, ports, roads and bridges—that hold the potential to improve a country’s economic future and communities’ quality of life. As a result, the global infrastructure gap continues to grow every year. Long-term investors such as CDPQ can play a meaningful role in reducing this gap by providing the capital and the know-how to ensure these important projects are executed. It is a win–win scenario. Local governments and countries provide the infrastructure people need to work and live better, and long-term investors can generate the reliable returns and predictable cash flow they need over time, all the while advancing public interest.

McKinsey: How does the business model work?

Macky Tall: Beyond providing capital, CDPQ Infra seeks to provide a one-stop shop for project delivery and development, with capabilities to support each project from A to Z. The REM illustrates how the model works. CDPQ Infra is working closely with every level of government: local, provincial, and federal. They outlined their needs, and we put forward the design for an integrated transit system to meet those needs. As one of the few organizations in the world with both the financial capacity and the technical expertise required to carry out major infrastructure projects from end to end, we manage design, permitting, procurement, construction, and, eventually, operations.

This unique kind of partnership is not devoid of challenges. We first needed to recruit a broad spectrum of talent that we did not have internally. But the project’s scope and ambition appealed to professionals at the very top of their respective fields. Second, we had to convince governmental partners and the public of the benefits of our model, which is distinct from that of other public–private partnerships because of our involvement at the design and development phases. Third, we had to demonstrate that the model would allow us to plan, finance, and begin the construction of a major transit infrastructure project within an efficient time frame.

Finally, the REM is very much a coming together of old and new. We needed to use and upgrade the existing rail line that runs through downtown Montreal. Otherwise, the project wouldn’t have been financially viable and socially acceptable. The promised result is a fast, frequent, and reliable light-rail service that serves a much wider area than we could have covered without reutilizing existing rights of way.

McKinsey: How would you describe the REM as a “project of the future”?

Macky Tall: This model is a new way for governments to accelerate the development of much-needed infrastructure, so it’s inherently a model for the future. The REM is a great illustration of how that model can work to serve people today—and well into the future. Like most big cities, Montreal struggles with congestion, which negatively affects productivity, quality of life, and the environment. Without action, these problems will only intensify over time. The REM project can deliver meaningful progress, improving how people travel for leisure, to work, to home, and to the airport, all in an efficient way. It will better connect the city in a sustainable way. What truly makes this a project of the future is our focus on the longer term. We are building the REM to last for many generations, to keep pace with changing habits, and to reduce greenhouse gas emissions to help fight climate change.

McKinsey: REM development has moved at a fast pace relative to other major infrastructure projects of this size. What strategies have enabled this momentum, and are they applicable globally?

Macky Tall: From the start, we established a clear system of governance involving our partners and stakeholders. Our goal was to create the conditions for decisions to be made in a timely and informed manner. The bottom line is that everyone is on the same page and committed to the successful delivery of the project. We made a point of avoiding the linear approach to planning and construction. Operating on a single track—with Decision A followed by Decision B followed by Decision C—can be a recipe for delay and inertia. Instead, we chose to function with a design-build model. We are moving along in parallel on several fronts, which means we are allowing for progress to begin immediately on certain aspects such as planning and land acquisitions while we are ironing out design elements and compliance.

The CDPQ Infra model could be easily exported because today so many cities need efficient, safe, and adaptable mobility solutions. We’ve had a great deal of preliminary expressions of interest from around the globe. Decision makers are intrigued by the model and its potential to create growth.

McKinsey: In September 2019, CDPQ committed to a carbon-neutral investment portfolio by 2050. How does CDPQ Infra fit into that goal?

Macky Tall: Infrastructure plays a crucial role in reducing emissions. And as an organization, we understand that our long-term returns are directly linked to the long-term stability of our economy and the communities we invest in. CDPQ formally committed to fighting climate change in 2017 by pledging to reduce the carbon intensity of our overall portfolio by 25 percent by 2025. And, by the end of 2020, our goal is to increase investments in low-carbon assets by more than $14 billion compared with 2017. We would like to be seen as a leader in sustainable infrastructure. The REM, for instance, is fully electric and will be carbon neutral from beginning to end. It will help reduce 115 million vehicle-km, which translates to a significant reduction in the distance being covered by cars. We want to show that the future of urban mobility can—and should—be efficient and carbon neutral.

Phenomenal interview with CDPQ's Macky Tall. I've been catching up on my reading and decided this was well worth covering on Thursday as it seems to be the day when most people read this blog (they should read it every day). 

In this interview, Macky Tall covers a few things:
  • Mass public transit remains a crucial component of city planning but many governments are too heavily indebted and they either won’t or can’t invest in the major projects—like public transit, ports, roads and bridges—that hold the potential to improve a country’s economic future and communities’ quality of life.
  • One way around these fiscal constraints is to partner up with the right long-term investor, one that has the capital to invest as well as the internal expertise to deliver on such infrastructure projects.
  • CDPQ Infra seeks to provide a one-stop shop for project delivery and development, with capabilities to support each project from A to Z. As one of the few organizations in the world with both the financial capacity and the technical expertise required to carry out major infrastructure projects from end to end, they manage design, permitting, procurement, construction, and, eventually, operations.
  • The Réseau express métropolitain (REM)—the CAD $6.5 billion, all-electric, largest public-transportation network in half a century—which will interconnect multiple communities as well as the business center with the Montreal–Trudeau International Airport, is an example of how this model works. CDPQ Infra is working closely with every level of government -- local, provincial, and federal -- and it is on track to commence operations by 2022.
  • Once completed, the REM will provide a fast, frequent, and reliable light-rail service that serves a much wider area than reutilizing existing rights of way and it will significantly reduce congestion, which negatively affects productivity, quality of life, and the environment.
  • The REM project can deliver meaningful progress, improving how people travel for leisure, to work, to home, and to the airport, all in an efficient way. It will better connect the city of Montreal in a sustainable way. And Macky Tall emphasizes: "What truly makes this a project of the future is our focus on the longer term. We are building the REM to last for many generations, to keep pace with changing habits, and to reduce greenhouse gas emissions to help fight climate change." 
  • In fact, once operational and fully electric, the REM will be carbon neutral and it will help reduce 115 million vehicle-km, which translates to a significant reduction in the distance being covered by cars.
  • The CDPQ Infra model could be easily exported because today so many cities need efficient, safe, and adaptable mobility solutions. CDPQ Infra has had a great deal of preliminary expressions of interest from around the globe. 
On that last point, I've already discussed how CDPQ's former CEO, Michael Sabia, was looking to export the CDPQ Infra model but thus far, nothing has been signed. 

Back in June, I wrote how CDPQ Infra was derailed in Auckland, New Zealand.

However, in August, NZ Infra, a partnership between the New Zealand Superannuation Fund and CDPQ Infra, welcomed the New Zealand Government’s announcement of the next steps regarding the City Centre to Māngere Light Rail corridor in Auckland:

“We are pleased to be taking part in the new process being led by the Ministry of Transport to advance light rail in Auckland,” said the New Zealand Superannuation Fund CEO Matt Whineray. “We are currently preparing a range of information that we will provide to the Ministry.”

CDPQ Infra Managing Director Jean-Marc Arbaud said: “NZ Infra is committed to presenting the Government with the highest quality light rail proposal possible.”

The Government’s assessment process will take up to six months.

Due to the commercially sensitive nature of the process, NZ Infra cannot comment any further at this time.

A lot is banking on this deal. If NZ Infra’s proposal is approved, it will allow CDPQ Infra to stay alive after REM and move on to the next major project.  

Let me be clear, as it stands, CDPQ Infra's model has not been approved anywhere else and it's critical that governments approve these projects for the group to export their technical and financial knowledge and continue existing in the current form.

If unsuccessful, CDPQ Infra will be closed and Infrastructure at the Caisse will revert back to being just about doing direct deals with partners, what Emmanuel Jaclot and his team are doing, investing in infrastructure assets all over the world. 

For example, recently CDPQ co-invested with EQT in Colisée, a European leader in elderly care:

Caisse de dépôt et placement du Québec (CDPQ), a global institutional investor, announces the acquisition of a minority interest in Colisée Group, a key player in Europe's nursing home sector.

CDPQ's investment alongside EQT Infrastructure V (EQT Infrastructure, majority shareholder) and Colisée's management team will enable the company to consider new growth opportunities, including in new markets, while consolidating its high-quality care and services offering.

Headquartered in Paris, Colisée currently operates more than 270 nursing home facilities as well as home care services agencies, mainly in France, Belgium, Spain and Italy. In addition to nursing home facilities, Colisée has diversified its offering to provide more services to help the elderly. The company employs more than 16,000 people and has annual revenues of over €1 billion.

This stake is the culmination of talks with Colisée management that began in 2019 and is part of CDPQ's enhanced infrastructure investment strategy in Europe. As a long-term investor, CDPQ will support Colisée in its development plan, which takes into account major trends such as the aging population and growing demand for elder care services.

"For CDPQ, this acquisition represents a significant investment in health care infrastructure, an essential sector where needs are growing and where Colisée is well positioned," said Emmanuel Jaclot, Executive Vice-President and Head of Infrastructure at CDPQ. "Colisée's excellent track record in terms of quality of care and resident well-being is a crucial element of this partnership, and is consistent with our ESG approach."

"With the support of a long-term investor like CDPQ, Colisée will continue developing its elder care services. CDPQ shares common values with our company, and social responsibility is at the heart of its mission," stated Christine Jeandel, President of Colisée.

"EQT Infrastructure is proud to have the participation of a high-quality partner such as CDPQ for this investment in social infrastructure, a speciality area for EQT. With CDPQ's investment alongside EQT Infrastructure, Colisée will benefit from shareholders who can support the group's strong growth over the long term, said Ulrich Köllensperger, Partner and Thomas Rajzbaum, Managing Director at EQT Partners and investment advisors at EQT Infrastructure.

The transaction is subject to regulatory approvals. The financial terms of the transaction were not disclosed.

This is a fantastic deal in healthcare infrastructure with a first-rate European partner. It's also sort of gutsy as we are in the middle of a global pandemic and most investors don't want to touch long-term care with a ten foot pole.

Recall my recent lengthy comment on PSP's Revera and how it's under so much public scrutiny. Revera is part of PSP's Real Estate portfolio.

[Note: Darren Baccus, PSP's Global Head of Real Estate, recently left the organization.]

By the way, someone recently emailed me to ask me if I believe that seniors residences should be made public and I said "no way!".

I believe Canada has a huge problem, we need to assess what went wrong, it hit public and private long-term care facilities but at the end of the day, I trust well run private LTC facilities a lot more than government run ones and think we need to adopt national standards and follow up regularly

Anyway, I better wrap it up but one last thing. Does anyone know what is going on at the Canada Infrastructure Bank? Why is it taking Michael Sabia so long to find a new CEO? (Michael: contact me, you need to get going on this "CEO hunt" and I have a few great candidates!!). 

Truth be told, I think Michael Sabia has his candidate which would explain why recruiters aren't talking to other worthy candidates (I can write a book on how things work behind the scenes).

Alright, now I will wrap it up before I ruffle any feathers.

Below, CNBC's Brian Sullivan moderated a panel discussion in 2019 at the Milken Institute on filling the infrastructure gap. Great discussion but next time, they need to invite Macky Tall to take part.

And Christian Brändli, SECO’s Head of Economic Cooperation and Development, talks about urban development, the Sustainable Development Goals, and the role of the private sector in financing infrastructure megaprojects

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