19 April 2017

Pension Fund Investment in Infrastructure: A Comparison Between Australia and Canada by OECD

Written by Organisation for Economic Co-operation and Development - Georg Inderst and Raffaele Della Croce
Developed by Organisation for Economic Co-operation and Development
19 April 2017
This paper compares and contrasts the experience of pension funds in investing in infrastructure projects in Canada and Australia, looking at factors such as infrastructure policies, the pension system, investment strategies, asset allocation and governance of pension funds. In fact, the two countries have the highest asset allocation to infrastructure by pension funds (of roughly 5%) across the globe. There are a number of similarities between the two countries, in particular a trust-based pension system, the absence of restrictive investment and solvency regulation, a mature PPP market and a relatively stable political environment. In line with international asset allocation trends, both countries have built up sizeable alternative asset portfolios in recent years at the expense of public equities. There are also some marked differences. Canada is largely abstaining from privatizations while Australia is considering further asset recycling of public assets to finance new infrastructure projects. Canada has a well-functioning project bond market while Australia has not. The benefit systems are at the opposite ends of the spectrum with defined benefit (DB) in Canada and defined contribution (DC) in Australia. Canada's pension plans are widely underfunded while Australia's are growing fast.