PSP Investments Joins CPP Investments and Ferrovial in 407 ETR Ownership Group
Public Sector Pension Investment Board is making its largest-ever investment in Canada with a multibillion-dollar deal to acquire a piece of Ontario’s 407 ETR toll road.
In a series of transactions announced Thursday morning, Montreal-based engineering giant AtkinsRéalis Group Inc. said it was divesting its 6.76-per-cent stake in the toll road for nearly $2.8-billion. Spanish construction giant Ferrovial will buy most of that stake – 5.06 per cent – for $2.1-billion and Canada Pension Plan Investment Board will acquire AtkinsRéalis’s remaining stake for $700-million.
In a parallel deal, PSP Investments will acquire 7.51 per cent of the 108-kilometre toll road, which runs from Burlington to Oshawa, from CPPIB for an up-front payment of nearly $2.4-billion plus an undisclosed deferred payment to be made up to 18 months after the deal closes.
The PSP investment is being made amid mounting pressure on Canada’s largest pension funds to make more of their investments inside Canada. The federal government has openly called on major pension funds – often referred to as the Maple 8 – to boost their domestic investments.
“As we think about opportunities in Canada, with the appetite we have, it is not often that we see opportunities of this size and so when something like this came about that was certainly very interesting,” said Michael Rosenfeld, managing director of infrastructure investments at PSP.
“This is, for us, the largest acquisition we have ever made in Canada.”
AtkinsRéalis first put its stake in the 407 up for sale in June, 2024. At the time, it was estimated to be worth $1.7-billion, which suggests the overall value of the 407 has grown by nearly 65 per cent over the nine-month period since then.
In the middle of that period - in October, 2024 - Ontario Premier Doug Ford publicly suggested the provincial government might repurchase the 407 ETR (for Express Toll Route). Based on the price AtkinsRéalis is getting for its stake, the entire toll road is now valued at more than $40-billion.
The 407 regularly generates over a billion dollars in annual earnings before interest, taxes, depreciation and amortization (EBITDA). And because of the extremely long concession held by its owners – the 1999 lease given by Ontario’s then-Premier Mike Harris does not expire until 2098 – the 407 is a particularly coveted holding for long-term investors like pension funds.
“Looking at the size of the road, the duration of the road and the growth of the road from a volume perspective, those are prized assets in the infrastructure market,” James Bryce, head of infrastructure at CPP Investments, said in an interview from London.
“People like us are after long-duration, stable, growing cash flow businesses and 407 is exactly that.”
CPP will own 44.2 per cent of the toll road once all the transactions announced Thursday close, down from slightly more than 50 per cent previously. Mr. Bryce said CPP had been planning to reduce its stake since 2019 when the pension fund struck a $3.3-billion deal to buy an extra 10 per cent of the 407 from AtkinsRéalis, which was then known as SNC-Lavalin Group Inc.
“At that time we always knew at some point in time we would be looking to reduce the exposure that we had to a certain degree and we are doing that now, six years later,” Mr. Bryce said. “With AtkinsRéalis moving on and PSP coming in and we saw it as an opportunity to right-size our position.”
For AtkinsRéalis, the sale is part of a broader strategic plan to streamline what had previously been a wide-ranging business model around two core businesses.
“This is an important step in our strategic journey to simplify the business, create value for shareholders and become a focused, world-class engineering services and nuclear company,” AtkinsRéalis CEO Ian Edwards told analysts on a call Thursday.
Of the roughly $265-billion that PSP Investments holds in total assets under management, roughly one-fifth, or about $56-billion, was in Canada as of March 31, 2024 when the fund last disclosed its holdings.
Part of the difficulty pension funds have faced in trying to grow their proportion of Canadian holdings, Mr. Rosenfeld said, is that domestic assets large enough to attract their interest are very rarely up to sale.
“We have had a long history of looking very closely in Canada, but we don’t often see opportunities of this kind of scale, which can make it challenging for a pension fund like PSP that has significant assets under management and very large, multibillion-dollar deployment targets on individual transactions,” he said. “To put it into context I have been at PSP for about 18 years and this is the first time we’ve seen something of this size in Canada.”
Under federal legislation known as the Foreign Property Rule, major Canadian pension funds in the 1970s were prevented from investing more than 10 per cent of their assets outside of Canada. Over the following decades, that limit was gradually increased until 2005, when it was removed entirely.
CPP is Canada’s largest pension fund with nearly $700-billion in assets under management as of Dec 31, 2024. Just 11 per cent of that, or $73.7-billion, is invested in Canada, though Mr. Bryce said there is a desire to increase that.
“For us, we are very interested in trying to put money to work in Canada, but as part of a global strategy,” he said. “It is no surprise to me that there is a desire to encourage inward investment in Canada and it is something we are looking at, but always have done, so it is business as usual in that regard.”
Earlier today, PSP Investments issued a statement saying it has joined CPP Investments and Ferrovial in 407 ETR ownership group:
Transaction Highlights:
- PSP Investments to acquire significant minority stake of 7.51% in 407 ETR from CPP Investments
- CPP Investments and Ferrovial to concurrently enter into agreements to acquire an aggregate 6.76% stake in 407 ETR from AtkinsRéalis
- Transactions position 407 ETR for long-term performance amid increasing traffic demand
TORONTO, ON (March 13, 2025) – Public Sector Pension Investment Board (PSP Investments), one of Canada’s largest pension investors, today announced that it has entered into agreements to acquire a strategic interest in 407 Express Toll Route (407 ETR), an all-electronic, barrier-free, toll highway spanning 108km in the Greater Toronto Area, from investment management organization Canada Pension Plan Investment Board (CPP Investments).
PSP Investments will add this 407 ETR investment to its global portfolio of road assets through the acquisition of a 7.51% stake for a purchase price comprised of approximately $2.39 billion payable at closing, and a deferred payment to be made up to 18 months after closing.
Simultaneously, engineering services and nuclear company AtkinsRéalis will enter into agreements to sell its remaining 6.76% stake in 407 ETR to CPP Investments and Ferrovial, a global infrastructure company. CPP Investments expects to acquire a 1.70% interest in 407 ETR from AtkinsRéalis, on the same basis as the deferred portion of the purchase price paid by PSP Investments. Net proceeds to CPP Investments from all of the applicable transactions are expected to be approximately $2.39 billion for a net 5.81% interest sold after closing.
Following completion of these transactions, ownership control of 407 ETR is expected to be attributed as follows: Ferrovial at 48.29%, CPP Investments and other institutional investors at 44.20%, and PSP Investments at 7.51%. AtkinsRéalis will cease to be a shareholder.
“We are pleased to join CPP Investments and Ferrovial in the 407 ETR ownership group. PSP Investments has deep expertise in the transportation sector and will support the long-term stability and reliability of this critical road that services more than 3 million Canadians each week,” said Sandiren Curthan, Managing Director and Global Head of Infrastructure Investments, PSP Investments. “Our investment in 407 ETR represents our largest infrastructure commitment in Canada to date and exemplifies our broader infrastructure strategy, which is focused on investing in high-quality, essential global infrastructure assets in transportation, communications and energy, enabling us to deliver on our mission and mandate.”
“This transaction enables CPP Investments to optimize returns for CPP contributors and beneficiaries while building stronger ties with two valued partners and continuing to own a significant stake in a high-quality business,” said James Bryce, Managing Director, Head of Infrastructure, CPP Investments. “We look forward to partnering with PSP Investments, Ferrovial and the management team, as the 407 ETR continues to deliver excellent service to the millions of individual and business customers who use the highway.”
“We are pleased to have PSP Investments join Ferrovial and CPP Investments as a shareholder in 407 ETR. We share a long-term commitment to this high-quality asset and a track record of successful collaboration with all our partners. We will continue to serve the citizens of the Greater Toronto Area and improve mobility and growth in the region,” said Ignacio Madridejos, CEO of Ferrovial.
The transactions are subject to customary closing conditions and adjustments.
About PSP Investments
The Public Sector Pension Investment Board (PSP Investments) is one of Canada's largest pension investors with $264.9 billion of net assets under management as of March 31, 2024. It manages a diversified global portfolio composed of investments in capital markets, private equity, real estate, infrastructure, natural resources, and credit investments. Established in 1999, PSP Investments manages and invests amounts transferred to it by the Government of Canada for the pension plans of the federal public service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force. Headquartered in Ottawa, PSP Investments has its principal business office in Montréal and offices in New York, London and Hong Kong. For more information, visit investpsp.com or follow us on LinkedIn.About CPP Investments
Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that manages the Fund in the best interest of the more than 22 million contributors and beneficiaries of the Canada Pension Plan. In order to build diversified portfolios of assets, investments are made around the world in public equities, private equities, real estate, infrastructure and fixed income. Headquartered in Toronto, with offices in Hong Kong, London, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At December 31, 2024, the Fund totalled C$699.6 billion. For more information, please visit www.cppinvestments.com or follow us on LinkedIn, Instagram or on X @CPPInvestments.About Ferrovial
Ferrovial is one of the world’s leading infrastructure companies. The Company operates in more than 15 countries and has a workforce of over 25,000 worldwide. Ferrovial is triple listed on Euronext Amsterdam, the Spanish Stock Exchanges and Nasdaq and is a member of Spain’s blue-chip IBEX 35 index. It is also included in globally recognized sustainability indices such as the Dow Jones Best in Class Index (former Dow Jones Sustainability Index), and all its operations are conducted in compliance with the principles of the UN Global Compact, which the Company adopted in 2002.
CPP Investments issued the same statement here.
Alright, this is an excellent infrastructure deal for PSP Investments, acquiring a stake in one of the most prized infrastructure assets in Canada.
Ontario’s 407 ETR toll road is the largest asset in CPP Investments' portfolio, it has held it for years.
In fact, CPP investments has been an investor in the 407 ETR toll road back since 2010 when it acquired control of a 40% holding in the business through two separate transactions and it 2019, it increased its stake by another 10%:
Toronto, Canada (August 15, 2019) – A company controlled by Canada Pension Plan Investment Board (CPPIB) has acquired a 10.01% equity stake of 407 International Inc. (407 International), which holds a concession over the 407 Express Toll Route (407 ETR), from SNC-Lavalin Group Inc. (SNC-Lavalin). Under the terms of the agreement, CPPIB agreed to pay $3.0 billion to SNC-Lavalin on closing, with an additional $250 million set to be paid over 10 years, conditional on achieving certain financial targets related to the performance of the toll highway.
CPPIB has been an investor in 407 International since 2010, when it acquired control of a 40% holding in the business through two separate transactions. Located in Ontario, Canada, 407 ETR is the world’s first all-electronic, barrier-free toll highway, stretching 108 km and serving more than 400,000 drivers each weekday.
“CPPIB invests in global infrastructure assets that offer predictable, resilient income streams in attractive locations. Toll roads provide CPPIB the opportunity to benefit from urbanization trends and invest in assets that benefit from the growth of a region,” said Scott Lawrence, Managing Director, Head of Infrastructure, CPPIB. “The 407 ETR continues to be an attractive infrastructure investment for all these reasons, and remains a good strategic fit with CPPIB’s portfolio and exceptionally long investment horizon. We are pleased to increase our investment in a company with great management, dedicated to delivering a valuable service to so many.”
CPPIB has a diversified, global portfolio of infrastructure assets and makes direct investments through many of its nine offices worldwide. CPPIB’s Infrastructure group is focused on investing in quality, large-scale core opportunities with dependable, like-minded partners.
Upon completion of the transaction, CPPIB controls a 50.01% stake in 407 International.
The same reasons Scott Lawrence cited back in 2019 for investing in the 407 ETR are still valid today.
These are long-duration assets with predictable cash flows that offer inflation protection (embedded in the contracts). Moreover they are highly scalable assets so pension funds can invest large sums in a prized infrastructure assets and get the long duration they require to meet long-dated liabilities.
Here is what James Bryce, Head of Infrastructure at CPP Investments, said in an interview from London (from article above):
"Looking at the size of the road, the duration of the road and the growth of the road from a volume perspective, those are prized assets in the infrastructure market. People like us are after long-duration, stable, growing cash flow businesses and 407 is exactly that."
And Michael Rosenfeld, Managing Director of Infrastructure investments at PSP stated this:
“As we think about opportunities in Canada, with the appetite we have, it is not often that we see opportunities of this size and so when something like this came about that was certainly very interesting. This is, for us, the largest acquisition we have ever made in Canada.”
He added:
“We have had a long history of looking very closely in Canada, but we don’t often see opportunities of this kind of scale, which can make it challenging for a pension fund like PSP that has significant assets under management and very large, multibillion-dollar deployment targets on individual transactions. To put it into context I have been at PSP for about 18 years and this is the first time we’ve seen something of this size in Canada.”
Let me be blunt, it was a no-brainer for PSP Investments to join CPP Investments and Ferrovial in owning part of the 407 ETR even if the asset has its critics (see second clip below).
These are the largest Crown corps in Canada (largest and third largest pension fund) and they are excellent stewards of this important asset along with Ferrovial (I believe CDPQ has a small stake too).
Every large Canadian pension fund is looking to invest large sums in prized Canadian infrastructure assets but there's not enough supply to meet growing demand and the federal government is slow to privatize assets like airports, ports, toll roads and other assets.
Hopefully this will change soon no matter who wins the next federal election.
I also learned this week that Macky Tall, former Head of Infrastructure and Liquid Markets at CDPQ and Chair of Carlyle’s Global Infrastructure Group, was named the new Chair of the Board at Canada Infrastructure Bank:
Macky is a top infrastructure investor, he will be pushing for deals but they still need government backing and initiatives to privatize portions of larger infrastructure assets so our large pension funds can invest.
We are not there yet, the pieces are coming together but it's a painfully slow process riddled with political considerations.
Alright, let me wrap it up.
In short, this is a great deal for PSP investments and its members and CPP Investments and Ferrovial are getting an outstanding like-minded partner in PSP to help grow the 407 ETR.
Below, Highway 407 ETR is the world’s first all-electronic, open-access toll highway. It is a majority Canadian owned company that proudly employs over 460 Ontarians.
In 1999, it paid the Province of Ontario $3.1 billion for a 99-year lease, double its cost to build the highway. Learn more at 407etr.com (sweet deal).
I also include another clip which takes a deep dive into the history and controversy surrounding Mike Harris's Conservative Party sale of Highway 407, which this clip claims is "widely considered the worst deal in Canadian business history."
It is true that 407 is highly profitable and that the Ford government considered buying it back last year but the owners are primarily Canadian and as far as the tolls, I know they are not cheap but they are regulated so some of the claims here surprise me. Still worth watching this clip (experts can email me their thoughts).
Update: A toll road expert shared this with me after reading this post:
That is a bit of revisionist history. SNC (now AtkinsRéalis) took tremendous risk building the asset. Also current governments continuously distract as to why it has been so successful over the long term - it’s simply because Toronto has grown at an above average pace and its public highway systems haven’t kept up. Whose fault is that? Build more highways and the 407 would have to moderate prices in order to compete against a free alternative.
I won’t even start talking about expanding the commuter rail system (GoTrain) and what a disaster that has been.
As far as toll fares being regulated on the 407, he stated:
Not in this case. The contract was one-sided because they couldn’t find anyone else to take the risk. So the operator can charge whatever the market can bear. That is why if you build competing highways that are free, highway 407 will be forced to moderate their prices.
Lastly, he notes this on why the Ontario government needs to build more highways or a REM in Toronto:
If you want productivity to continuously decline, make them spend 3 hours per day in traffic and build bicycle paths for your least productive part of the workforce.
Another expert said it's highly unlikely the Ford Government will buy back the 407 ETR or build a highway under the 401 because it will cost $30 to $40 billion and there will be public outcry.
He seems to think the plan all along is to build 413 at $10 billion which will enrich certain people close to Ford who bought farmland and will see huge increases in the value of that land.
Interesting exchanges, the truth is Toronto needs to revamp its public transportation system as the city keeps growing by leaps and bounds or it will suffer the consequences.
Whatever the case, the 407 ETR is a great investment for PSP and CPP Investments.
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