CDPQ Infra Derailed in Auckland?

David Burroughs of the International Railway Journal reports the New Zealand government has dropped plans for a two-line light rail network in Auckland after the cabinet could not agree on how the project should be implemented:
The project to open a line between the city centre and Mount Roskill by 2021 was a major promise made by the Labour party before it won the 2017 general election.

Two competing proposals were put forward to construct the City – Mangere and City – North West lines. The first, developed by the Waka Kotahi NZ Transport Agency, was followed by an unsolicited proposal from NZ Infra, a joint venture between the NZ Super Fund and CDPQ Infra, an arm of a Canadian pension fund Caisse de dépôt et placement du Québec.

“Either would have created hundreds of jobs and resulted in an Auckland metro that offered Aucklanders a 30 minute trip from the central business district (CBD) to the airport,” transport minister, Mr Phil Twyford, says.

The Ministry of Transport was tasked with comparing the two proposals and advising the cabinet on their merits before a final decision was made on which one to build.

However, disagreement within the Labour-NZ First coalition caused the project to stall and, ultimately, be dropped ahead of the upcoming election in September.

However, Twyford says the project remains part of the Auckland Transport Alignment Project (ATAP).

“The Ministry of Transport and the Treasury will report back after the general election on the best option for this project to be delivered by the public sector,” he says. “The Ministry of Transport and the Treasury will also engage with NZ Infra and Waka Kotahi about how work done on this project can support the next phase.

“Auckland Light Rail will be New Zealand’s most complex infrastructure project in decades and it’s vital we get it right for future generations.”
Dileepa Fonseka of New Zealand's Newsroom also reports that Auckland Light Rail put on ice:
The Auckland Light Rail dream appears to be no more, with both NZTA and NZ Super proposals taken off the table.

Confirming the end of the rival infrastructure bids on Wednesday, Transport Minister Phil Twyford said the Government parties within the coalition hadn't been able to agree on which proposal they wanted.

Twyford thanked NZ Infra and the NZTA for their pitches, adding: "Either would have created hundreds of jobs and resulted in an Auckland metro that offered Aucklanders a 30 minute trip from the CBD to the airport.”

The Ministry of Transport would undertake further work on the project before the general election, he said. Several sources have told Newsroom this effectively took light rail "back to square one".

NZTA took over the light rail project from Auckland Transport in 2017, but this was interrupted by an unsolicited bid from a consortium (NZ Infra) of NZ Super and Caisse de dépôt et placement du Québec (CDPQ) Infra, a wholly owned subsidiary of a Canadian pension fund.

CDPQ Infra managing director Jean-Marc Arbaud said they had gathered the best light rail experts in the world for their proposal.

"Our proposal was fully funded, deliverable and offered clear value for taxpayers. We diligently followed every step of the rules and process designed by the Ministry of Transport," Arbaud said.

"It is disappointing that the process has been cancelled but we respect the decision of the New Zealand Government.”

NZ Super Fund chief executive Matt Whineray acknowledged this was the end of the line for their light rail bid, but said the fund would look for opportunities to invest in other infrastructure projects.

“We entered into this process knowing the outcome was not certain. As Aucklanders, we are very proud of the innovative and high quality proposal we produced with the expert support of our partner CDPQ Infra," Whineray said.

National Party leader Todd Muller said the Government's announcement meant light rail had effectively "gone backwards" since Labour had come to power.

“After years of work and millions of dollars spent on consultants, lawyers and policy advice, the Government has got absolutely nowhere.”

Transport spokesman Chris Bishop said his party would deliver a "rapid transit system that Auckland needs" if it were elected.

In the past, National said it wanted a business case process to decide between light rail, bus rapid transit, or other rapid transit options for Auckland.

So far, the party hasn't made its preferred mode of rapid transit clear under its new leadership.

Twin tracks both derailed

NZ Infra wanted to build a mostly-underground metro rail system for Auckland funded through a public-private type partnership, but this was very different to the type of light rail system Auckland Transport had been working on.

That led to a "twin-track" process administered by the Ministry of Transport, which again hit a roadblock this year due to vehement opposition from New Zealand First.

Light rail was part of the coalition agreement between the Greens and Labour, but not between New Zealand First and Labour.

New Zealand First opposed the NZ Super proposal for two reasons. The party favoured heavy rail over light rail, but also opposed an investment model that would have seen money for the project being paid out to foreign investors.

Green Party transport spokeswoman Julie Anne Genter welcomed the cancellation of the entire process to date.

“With the twin track process over, detailed planning work on light rail can continue and key design and financing decisions can be taken quickly after the election."

From 'shovel-ready' to 'square one'

The Government had indicated it would make a decision on Auckland Light Rail this year.

The move to pause earlier light rail work in favour of going ahead with this process has been heavily criticised.

Auckland Transport's original proposal for light rail was reported to have been "shovel ready", but it was also a very different street-car-style system to the one proposed by NZ Super CDPQ.

Twyford said NZ Infra's case was "unique and compelling", but critics including Greater Auckland editor Matt Lowrie criticised the huge cost of the scheme both in terms of time and the PPP arrangements themselves.

On Wednesday morning, Lowrie told Newsroom he understood NZTA had changed Auckland Transport’s original proposal for light rail to one more in line with CDPQ’s proposal: a fully grade-separated light metro system solely focused on a fast trip to the airport.

“It's disappointing that it's come to this but is good as both options were massively overscaled and unaffordable.

“They were a significant departure from the sensible 'shovel-ready' proposal Auckland Transport had developed over a number of years and which the NZTA had started tendering for before being derailed by the Superfund and their Canadian partners.”
So much for Michael Sabia's vision of exporting the CDPQ Infra model all over the world.

I guess New Zealand's Government wasn't too keen on having CDPQ as a major investor in this project which is a shame since CDPQ Infra has plenty of experience in light rail and is completing the REM project here in Montreal.

But building something in your own backyard with your provincial government supporting you is a lot different than building something in a foreign country where you don't know the politics and regulations.

CDPQ Infra's managing director Jean-Marc Arbaud, the man responsible more than anyone for the REM, is right to feel disappointed:
"Our proposal was fully funded, deliverable and offered clear value for taxpayers. We diligently followed every step of the rules and process designed by the Ministry of Transport," Arbaud said.

"It is disappointing that the process has been cancelled but we respect the decision of the New Zealand Government.”
Of course, CDPQ Infra has to respect the decision of the New Zealand Government. I personally think it smacks of politics and wouldn't be surprised if there were some powerful local business interests trying to kill this project altogether (it's on hold now).

New Zealand is a developed nation but it's not part of the G20 (it's invited to meetings). It has an impressive leader, Jacinda Ardern, who has beaten coronavirus and is looking to get reelected, and by all accounts, she will get reelected

The country is a small, reasonably affluent island nation with a solid pension system:
The New Zealand three-pillar pension system comprises of the New Zealand Superannuation, a non-contributory state pension in the first pillar, and occupational superannuation schemes and the KiwiSaver scheme in the second pillar. Private pension savings in the third pension pillar complement the pension landscape.

New Zealand's public pension system, the New Zealand Superannuation (NZS), differs from those in many other countries. Its primary goal is to provide social protection rather than to replace earnings.

The non-contributory flat-rate pension is paid to all residents fulfilling the residence requirements at the age of 65. The beneficiary must have lived in New Zealand for at least 10 years since turning 20 with at least five years spent in the country after the age of 50. The pension is financed from general tax revenues. *The residency requirements are set for discussion 2017/18.

All benefits received under NZS are subject to income tax. The pension is paid regardless of whether the person is still employed or not. It is neither work nor income-tested. New Zealand has not legislated for a compulsory retirement age and employers are not allowed to specify a mandatory retirement age in employment contracts.

Early retirement is limited. The NZS does not provide benefits to those who retire before the age of 65. Those who leave the labour market before being eligible for NZS benefits can apply for conditional, means-tested public income support.

The Prime Minister plans to raise the superannuation age from 65 to 67. Occurring in six-month increments between July 2037 and July 2040, the hike would not affect those born before June 30, 1972.
CDPQ Infra found a great partner in the New Zealand Superannuation (NZS) for the Auckland light rail project. Unfortunately, politics took over here and we shall see if this light rail project gets off the ground after the elections.

Now, to be fair, I don't know all the details, it is a post-COVID-19 world, fiscal challenges abound and some people claim the options were "massively overscaled and unaffordable".

The only reason I'm bringing this up here is what will happen to CDPQ Infra if it can't realize Michael Sabia's dream to export its model all over the world?

But Sabia isn't running the show now, it's Charles Emond, and I'm not entirely clear he shares the same vision as his predecessor in regards to exporting the CDPQ Infra model all over the world.

I'm sure he'd like to but is it really feasible or will CDPQ Infra hit all sorts of political snags, even if it partners with the right partners?

Again, I'm not questioning the credentials of Jean-Marc Arbaud and his team at CDPQ Infra, but what will happen to CDPQ Infra after the REM is completed?

Without other major projects, it could run into an existential crisis of sorts and Charles Emond might decide to roll the subsidiary back into CDPQ where Infrastructure is headed by Emmanuel Jaclot.

I'm not saying it will happen but the REM project was "sort of easy" (it wasn't and there are some issues coming to the forefront) because it was done in our own backyard, it's much tougher exporting this model throughout the world.

It would be sad, however, if this was it for CDPQ Infra, a one and done deal. I'd love to them participate in other major (greenfield) infrastructure projects in Canada and now that Sabia is the Chair of the Canada Infrastructure Bank, we might see some movement there (finally).

There's no doubt there is a need to revamp our infrastructure in this country but COVID-19 has hit our decrepit transit systems hard:

Anyway, I am still waiting for Michael Sabia to name a President & CEO at the Canada Infrastructure Bank and it doesn't look like Macky Tall is interested, at least not from the outside (who knows what conversations are taking place behind the scenes).

In April, Macky Tall was appointed Head of Real Assets and Private Equity at CDPQ as part of other appointments at the organization to maximize expertise and face global economic challenges:
Through his various roles, Mr. Tall has built strong and lasting connections with CDPQ’s business partners. His track record includes achievements such as globally positioning our infrastructure activities and strengthening our operational expertise in Liquid Markets. In his new position, he will be responsible for the International Private Equity, Infrastructure and Capital Solutions teams, as well as for CPDQ Infra, where he remains President and Chief Executive Officer. Leadership of these teams remains unchanged. Mr. Tall is also appointed Chairman of the Board of Directors of Ivanhoé Cambridge, which will provide him with a broad perspective on our real assets activities, including real estate, where the portfolio’s repositioning is already well underway under the leadership of Nathalie Palladitcheff, President and Chief Executive Officer of the real estate subsidiary.
Last week, I covered Ivanhoé Cambridge's 99 problems in a long comment where I criticized Michael Sabia and Daniel Fournier for not doing more to pare down the Retail portfolio which was a legacy portfolio and a noose around the organization's neck.

I applauded the fact that Macky Tall was named the Chair of the Board at Ivanhoé Cambridge and that Kim Thomassin (Head of Quebec Investments) and Maarika Paul (Chief Financial and Operations Officer) era also appointed to that board.

To be blunt, it reassures me that Macky Tall is on that Board not because I don't trust Nathalie Palladitcheff, President and CEO of Ivanhoé Cambridge, I most definitely do, but because Macky is a no nonsense type of guy who can really understand the operations and fit everything in with the rest of CDPQ which is why Charles Emond placed him there.

As an aside, I have to tell you, I'm not a big fan of big real estate subsidiaries (or other subsidiaries) at Canada's large pensions, especially in a post-COVID world.

In an ideal world, Ivanhoé Cambridge, Cadillac Fairview and Oxford Properties wouldn't exist on their own. Instead, everyone would be following the CPPIB/ PSP/ HOOPP model where real estate is just another division of the main pension, with its leader and team.

Why we need separate real estate subsidiaries is beyond me but I'm sure there is a counter argument to my logic.

[Note: Did you know while CDPQ employees enjoy a full defined-benefit plan, the employees at CDPQ Infra don't, they have a defined-contribution plan? This seems grossly unfair to me (Ivanhoé Cambridge employees also have a DB plans, see update below).].

Anyway, back to Macky Tall, there was a great profile on him in Le Journal de Montréal recently:

He talked about how George Floyd's death touched him and reminded him how racism is still a problem, but he admits never experiencing discrimination in his carreer.

He can count himself as part of the lucky few. The article is in French and begins like this:
"Blacks are very rare in the upper echelons of power in Quebec. But there is one exception: at the Caisse de depot et placement, Macky Tall manages billions of dollars, which makes him one of the most powerful Quebecers."
My question is this: Why is there only one Macky Tall? Why aren't there more blacks, ethnics,women, LGBTQ+ members, indigenous people and people with disabilities in the upper echelons of power (and all echelons) at large public and private organizations in Quebec and the rest of Canada?

The answer is simple: There is systemic racism in Quebec and Canada where we love to point the finger at "blatantly racist Americans" down south because it numbs the pain of looking in the mirror and taking a hard look at our own shortcomings.

So, while I'm happy to see Macky Tall thrive at CDPQ, I'd like to see more black, brown, yellow and people from all stripes, colors and religions at all levels of our large organizations which remain disproportionately populated by old, white Christian males (not that I have anything against them).

In fact, if I were Premier Francois Legault, I'd hold a commission on systemic racism in Quebec (don't hold your breath!) and one on the catastrophic failure of our long-term care centers in this province, known as CHSLDs.

The way this province and this country treat our elderly is utterly disgusting. I'm ashamed to call myself Canadian/ Quebecois given how COVID has exposed systemic failures in our long-term care centers, it's just appalling (this is what happens when the provinces take over and subcontract everything to the private sector without national/ provincial standards, some are successful, most are catastrophic and the worst are downright criminal).

Anyway, I started off talking about CDPQ Infra and the setback with the Auckland light rail project and ended up talking about systemic racism and the travesty that happened at our long-term care centers during this pandemic.

Like I said, it's my blog, sometimes I ramble on and won't apologize for being highly opinionated (feel free to agree or disagree with me, we live in a democracy).

Below, TVNZ 1 reports on how plans to build light rail from Auckland city to airport are back to the drawing board.

Also, exactly one year ago, Auckland Mayor Phil Goff said the Super City needs light rail but admitted he's frustrated with the lack of progress to date. I wonder what he thinks these days. 

Lastly, Bruce Flatt, CEO of Brookfield Asset Management, talks with Bloomberg’s Jason Kelly at the Bloomberg Invest Global virtual summit about where they’re putting money to work right now, the outlook for infrastructure investing, and his thoughts on where the markets are headed (h/t Paul Walker and Harmony Lei Zhou).

Here is what I shared on LinkedIn:
He raises a lot of excellent points, some of which I agree with (building culture, collaboration and spontaneity at the office), but I can't help thinking he is talking up his book and has a biased view on offices. A lot of companies and pensions I talk to are in no rush to return to their offices and some of the senior managers aren't coming back at all for health concerns, no matter how much "elbow room" they have. Also, as I keep stating, tech companies are the new anchor tenants and many of them will offer their employees the flexibility of working from home. Still, Bruce Flatt is Bruce Flatt and he leads one of the top alternative investment shops in the world, so this interview is definitely worth watching as he talks about more than offices.
You can read more of my thoughts on the paradigm shift in real estate here.

Speaking of real estate, I found Blackstone's new venture very interesting:

It shows you where they're taking their risk now, hunkering down and waiting for all this to play out.

Update: One former pension fund manager shared this with me after reading this comment:
[...] These types of transit projects are always very hard to get off the ground as they require massive subsidies from the government to be sustainable. I don't know Auckland well, but I find it hard to believe that Auckland really needed this type of project as it only has 1.5 M people so it is not that large of a city. So that may be the reason why this project was quashed.
He also told me there are a number of LGBTQ people in senior roles in large Canadian pension plans, but they may not want to be public about their sexual orientation. I thank him for sharing this.

Also, a reader who will remain anonymous shared this with me:
Ivanhoé Cambridge employees have a defined benefit plan.

Also, on the merits of a real estate subsidiary, it has to do with how these entities were first created /acquired over decades since most had an operational/ real estate development first raison d’être. Oxford. CF and IC (originally Steinberg) are builders and operators. Others like PSP and CPPIB do not manage themselves.

IC/Caisse chose not to keep SITQ name (operations of office) and Cadim name (development and more risk taking / residential and international development entity) after Fournier merged all entities in 2011 but kept as retail brand was strong.

Also, demonstrating to possible co-investor that you had the capacity and understood operations gave IC a competitive edge. Big question is: is that the right model for the future?
I thank this person for sharing these insights