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Canada’s CDPQ fund plans to invest up to US$2bn in LatAm in 2023

Bnamericas Published: Tuesday, October 11, 2022
Canada’s CDPQ fund plans to invest up to US$2bn in LatAm in 2023

Canadian pension fund CDPQ is upping its investments in Latin America with plans to allocate up to US$2bn in the region in 2023 as it looks to diversify its infrastructure portfolio.

The bulk of the resources will be for Brazil. As for new segments, the company is looking for opportunities in telecom towers and datacenters, energy (notably renewables), transportation (airports and railways) and, increasingly, sanitation, among others.

“We are constantly growing our investments in Latin America and Brazil. Three years ago, we had nothing allocated in Brazil. Today we have more than US$5bn in the country, just in infrastructure. The trend is to continue increasing this [portfolio] in the country and in the region, at least until the end of the decade,” Eduardo Farhat, managing director of CDPQ for Brazil and Latin America infra VP, told BNamericas.

According to the executive, CDPQ expects to push for US$1bn-2bn in annual investments in the next years in the region, driven by opportunities in a vast array of infrastructure segments, and depending on “the quality of the operations and the regulatory frameworks.”

In 2021, CDPQ invested US$11bn globally, Farhat said. 

CDPQ was created by a law passed in 1965 by Québec province with the initial role of managing the funds of a newly created universal retirement plan, the Québec Pension Plan. 

First investments outside Canada started in 1975 and CDPQ Infra was created in 2015, mostly to focus on the design, financing, development and operation of infrastructure projects. Nearly 70% of the portfolio is now outside Canada, up from 54% seven years ago.

The company has offices in dozens of countries, including in São Paulo and Mexico City in Latin America, from where it also manages investments in other LatAm markets. CDPQ has no plans for new offices in the region, Farhat said.

As of June 30, the fund had Cdn$392bn (US$284bn) in global net assets in its portfolio in over 65 countries. Of this total investment portfolio, Cdn$201bn were in equities. 

Latin America accounts for roughly 4% of CDPQ's global portfolio, compared to 1% in 2015, with around 12% in infrastructure investments. 

RECENT INVESTMENTS

Among the biggest deals in the region this year, CDPQ bought the power transmission assets of Italian group Terna in Brazil, Peru and Uruguay for over 265mn euros (US$258mn).

Terna's newly built transmission network in Latin America spans approximately 1,200km in the three countries. The acquisition marked the entry of CDPQ into the Latin American transmission market.

“With this first investment in energy transmission in Brazil, Peru and Uruguay, we are laying the foundations for a new CDPQ platform dedicated to energy transmission in Latin America, with the aim of making it one of the most relevant players in this critical sector of the economy”, CDPQ’s head of infrastructure, Emmanuel Jaclot, said at the time.

According to Farhat, CDPQ is looking particularly at expanding in the region in the renewables segment, in line with the global target of reaching a carbon-neutral portfolio by 2050. 

In Mexico, Farhat said CDPQ now owns nearly 2GW in renewables – in wind and solar.

In telecom infra, CDPQ has 50% of Telefônica Brasil’s fiber networks in the FiBrasil neutral fiber JV. Telefónica’s 50% stake is held through Telefônica Brasil and Telefónica Infra, the infrastructure arm of Spain’s Telefónica group, each holding 25%. CDPQ is said to have paid roughly 1.8bn reais (US$345mn) for the share.

To date, FiBrasil has revealed publicly two major contracts for the use of the fiber network: with Vrio's Sky and ISP Vero Internet. Farhat did not confirm the exact number of current clients but said FiBrasil does have other customers for its network.

He said CDPQ is very satisfied with the partnership with Telefónica in Brazil and added the fund is in talks with other regional telecom groups. 

CDPQ is a regular investor in Telefónica in Europe, where it also owns shares in American Tower Corporation, the world's biggest wireless tower supplier.

Beyond fiber, Farhat said towers and datacenters are two telecom infrastructure segments in which CDPQ is exploring opportunities in Latin America, depending on the market economics. 

“The telecom sector as a whole is increasingly infrastructure-oriented,” he said.

However, according to the executive, many tower and datacenter assets seem to be overvalued considering their characteristics and risks.

CDPQ also has, since 2019, a 30% stake in US telecom infra group Vertical Bridge Holdings

Vertical Bridge is controlled by US fund Digital Bridge, which in Latin America owns Scala Data Centers, tower companies Highline do Brasil, Andean Telecom Partners and Mexico Telecom Partners, and Chile's fiber operator Mundo.

Other major infra assets in CDPQ's LatAm portfolio include a 35% stake in Brazil's gas transportation pipeline operator TAG in partnership with Engie, and a Mexico highway concession with Australian partner IFM. 

The fund also has, through port operator DP World, a 45% stake in various ports, including one in Chile and one in the Dominican Republic.

In Mexico, CDPQ also made in 2019 a US$500mn investment in independent pharmaceutical company Sanfer to support its strategic growth in Latin America.

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