The push to build large-scale infrastructure projects in Canada, from pipelines and electricity grids to ports and transportation systems, has raised hope among institutional investors that policymakers will open new investment opportunities in less risky ways by embracing a fresh concept: asset recycling.

Selling government-owned assets , such as airports, toll roads and power generation systems that are already throwing cash to institutional investors and then using the proceeds to invest in the new builds of government priority projects, is the key mechanism of asset recycling. One of the most extensive and successful such programs was undertaken

in Australia , where Canadian pension funds are active investors. Opening up just five per cent of all Canadian government-owned assets to

private investors could generate between $25 billion and $50 billion that could then be redeployed into riskier builds of new infrastructure, Bank of Nova Scotia economists said in a report last June. A more ambitious asset recycling program, with a larger number of government-owned assets put on the block, could bring in more than $100 billion.

But successive Canadian governments have been reluctant to privatize on the scale embraced by their counterparts in other developed countries, and the lack of large-scale, cash-generating assets available for private investment has driven tensions between Canada’s globetrotting pensions and a federal government that has pushed for years to get them to invest more at home.

Mark Carney’s government, however, is keen to tap institutional investors to buttress its bold plans for infrastructure projects to boost Canada’s productivity and reduce dependence on the United States. In his government’s first budget in November, he announced $280-billion worth of capital investments and incentives intended to generate more than $1 trillion in total investment from public, private and institutional partners, including $315 billion in infrastructure alone.

Since then, government officials have been asking Canadian pensions about their participation in Australia’s successful asset recycling program worth A$23 billion in the mid-to-late 2010s, according to senior sources. In early March, as Carney swung through Australia on a trip to strengthen trade and alliances with middle powers including India and Japan, Canada’s largest pension funds signed a sweeping cooperation agreement with major Australian pension funds.

All of Canada’s global investors, known informally as the Maple 8, signed onto the Canadian-Australian Pension Funds Investment Initiative, which was formed to address policy barriers and unlock investment opportunities in both countries. A particular focus is infrastructure, where Canadian and Australian pension funds are both major players.

Sebastien Betermier, an associate professor of finance at McGill University’s Desautels Faculty of Management in Montreal and executive director of the International Centre for Pension Management, said asset recycling of some kind would flow naturally from the Carney government’s infrastructure priorities and developments such as the Australian-Canadian pension pact.

“(There is) an increased willingness by the current federal government administration to consider such opportunities,” he said, adding that priority infrastructure projects in Australia, including the Sydney Metro, were funded from proceeds generated by its asset recycling program. “We have much to learn about the benefits of doing asset recycling well from Australia, especially from the state of New South Wales.”

Canadian funds already invest billions in Australia and have partnered with institutional investors there on deals.

The Canada Pension Plan Investment Board (CPPIB) alone boasted $11 billion in investments across Australian infrastructure, real estate and public equities by mid-2018. That year, CPPIB, Canada’s largest pension, joined a consortium that bought WestConnex, a toll road project in Sydney.

Incoming Australian investment in Canada has been more muted, which some tie to previous Canadian governments’ reluctance to sell large established infrastructure projects.

During Carney’s trip to Australia this month — which included a breakfast meeting in Sydney with some of the country’s largest institutional investors — the government said Canadian direct investment there had grown to $58.8 billion in 2024, with Australia the top destination in the Indo-Pacific region for investors.

Direct investment figures typically include substantial long-term investments in assets such as infrastructure, the kind pursued by Canadian pension funds.

Australia’s direct investment in Canada was less than half that in 2024, at $27 billion, but it’s not that institutional investors don’t have the wherewithal to boost that figure. The country’s largest superannuation fund — AustralianSuper — had A$410 billion in assets under management as of Dec. 31, a figure forecast to grow to A$600 billion by 2030.

Like Canada, the funds in Australia have larger allocations to

infrastructure investments around the world than many of their global peers. The Canadian government was in the loop as the Canadian-Australian Pension Funds Investment Initiative was being crafted and is supportive, according to a senior pension official who spoke on condition of anonymity because they were not authorized to discuss what Ottawa hopes will flow from the pact. It is expected to help build on earlier conversations about Australia’s success with asset recycling, the person said, which added to the appeal of joining the alliance.

About half of all government-owned infrastructure in Canada — the roads, rail, bridges, ports, airports, utilities and pipelines that total $470 billion on public balance sheets — would be a fit for private investors such as pensions, Bank of Nova Scotia economists said in their report last June.

Canadian pension funds hold a far lower proportion of domestic infrastructure than their counterparts in the United Kingdom, Europe, the U.S. and Australia because privatization of government assets has been much more limited, they said.

But Canadian pension plans lined up to buy when governments in Australia put its infrastructure facilities — from electricity transmission networks to ports — on the block beginning in 2014 to raise funds for new projects that have uncertainty about costs and when they would start making money.

The Caisse de dépôt et placement du Québec and the Ontario Municipal Employees Retirement System , which respectively had $517 billion and $145.2 billion in assets at the end of December,

both took part in Australia’s asset recycling program . For example, the Caisse in 2015 joined a consortium that paid $9.9 billion for a 99-year lease for TransGrid, owner and operator of an electricity transmission network in New South Wales serving Sydney and Canberra.

Within Canada, the Caisse has invested in new transportation projects and other infrastructure in Quebec, largely as a result of a dual mandate of generating returns for pensioners and helping support the provincial economy.

Outside Quebec, however, there has been little appetite for selling major infrastructure and utilities to private investors.

The Ontario government faced pushback in 1999 when it sold Highway 407, a toll road in the Greater Toronto Area, to private interests, primarily because the previous NDP government had pledged to get rid of tolls once they had generated enough money to pay for the build.

The 108-kilometre highway is still largely in private hands, with Canadian pension funds taking a larger role over the years. CPPIB is now a major shareholder and the

Public Sector Pension Investment Board acquired a 7.5 per cent stake last year. The original sale remains controversial, with the Ontario government even introducing legislation in 2024 to ban new toll roads within the province and remove user fees from a provincially owned section of the 407. Ontario Premier Doug Ford criticized the sale to private interests, as both tolls and congestion have risen in the years since, and mused about buying it back as recently as last year.

Despite that history, Jo Taylor, chief executive of the Ontario Teachers’ Pension Plan Board , said his fund would “prioritize” investing in infrastructure in its home province and sees more potential infrastructure investment opportunities in Ontario than at the federal level.

“There are lots of other things (besides toll roads) to be able to have a discussion around,” he said. “There’s been a lot of discussion around nuclear power generation. There are live projects on electricity transmission and there are mining opportunities. There are quite a lot of things happening in Ontario where we’d be able to have a conversation with the premier.”

In general, Taylor said, it’s much easier to generate interest among institutional investors in asset recycling programs because of the lower risk profile, particularly if it involves an asset class where they already have experience.

“The concept of a built project to fund is easier than a to-be-built project,” he said, adding that Teachers’ representatives have been upfront with government officials about their areas of expertise and, therefore, their appetite. “That, simplistically, is something … where investors are going to be more able to give an assessment and show interest.”

Taylor’s interest in Ontario doesn’t rule out interest in a key asset owned by the federal government: airports. Carney’s first budget reignited a decade-old idea that the government could unload some of the airports it owns, many of which are operated by non-profit airport authorities.

“Pearson and Vancouver are the two choices really that you could start with,” Taylor said, adding that although Teachers’ sold off the last of its global airport portfolio last year, the fund has decades-long experience investing in airports, including links for international travel.

He said airports have been raised as an enticing asset by many in discussions between institutional investors and Carney’s government, which suggests there could be stiff competition from both domestic and international funds.

Stephen Poloz, a former governor of the Bank of Canada who set the stage last year for more institutional investment in the country’s airports as part of a task force he led to find ways to increase Canadian pension investments at home, said the cooperation agreement between Canadian and Australian pension plans signed this month could signal more openness to this type of sale, or asset recycling programs, to generate capital for newer federal priority projects.

But he predicted that there could be some reticence politically.

“I suppose it is possible,” he said in an email. “But it is the government that needs to be persuaded to do asset recycling, not the pension funds. Australian voters are used to the idea; Canadian voters much less so.”

Jim Keohane, a director at Alberta Investment Management Corp . (AIMCo), said using an asset recycling program to bolster the Carney government’s drive for new infrastructure would be difficult to pull off, but the biggest challenge is that many government-owned assets in Canada aren’t controlled by the federal government.

With a patchwork of provincial and municipal ownership across the country, the redistribution of funds becomes more controversial, he said, using Toronto’s Gardiner Expressway, whose oversight recently transferred to the Ontario government from the city, as an example.

“If you were to sell off the Gardiner Expressway to a group of investors to turn it into a toll road and use the proceeds of the sale to build a new highway in New Brunswick, there would be no benefit to the City of Toronto (or Ontario), even though the improved infrastructure might be beneficial overall,” Keohane said.

“This makes it almost impossible to replicate the type of infrastructure recycling programs they have in Australia.”

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