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Speaker 1: You're listening to Taking Stock with Kathleen Hayes and Pim

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Speaker 1: Fox on Bloomberg Radio. I'm Kathleen Pim Fox at the

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Speaker 1: fourth Annual Canadian Fixed Income Conference sponsored by National Bank

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Speaker 1: of Canada. Financial Markets were live at Bloomberg World Headquarters

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Speaker 1: in New York City and Pim and I have interviewed

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Speaker 1: so far corporate and government leaders, investors and analysts trying

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Speaker 1: to get a better understanding of Canada's bond markets and

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Speaker 1: particularly the forces that drive Canada's bond markets so investors

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Speaker 1: can better understand them as well. And we're very happy

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Speaker 1: to welcome to the show now Bruce Anderson. He's Managing

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Speaker 1: director for Project Finance and Infrastructure at Manual Life to

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Speaker 1: look at infrastructure investment and certainly around the world as

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Speaker 1: people say, monetary policies, central banks are running out of AMMO.

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Speaker 1: Something's got to take the take the baton now, and

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Speaker 1: it's got to be fiscal policy and infrastructure spending of

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Speaker 1: course is a very very big issue right now. So

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Speaker 1: welcome to the show, Bruce. So tell us little bit

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Speaker 1: more about your role at Manu Life, What what are

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Speaker 1: you doing, what are you watching? So our our group

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Speaker 1: is responsible for UH sourcing new transactions in the project

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Speaker 1: finance space. So that's for US renewable energies and UH

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Speaker 1: and infrastructure public private partnerships. So the sourcing transactions, do

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Speaker 1: you are putting the people with the money together with

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Speaker 1: the people entities that need the money for the project. No,

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Speaker 1: it's our money, so we're you're right for our So

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Speaker 1: I'm responsible for investing our balance sheet. Our group invests

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Speaker 1: our balance sheet, so we are looking for projects to

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Speaker 1: put money into. On a fixed income fixed income site,

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Speaker 1: tell us about infrastructure investing in Canada and then we'll

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Speaker 1: sort of broaden it out a little bit, but tell

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Speaker 1: us some of the attractive characteristics and some of the

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Speaker 1: challenges of investing. So as a sector, I think it's

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Speaker 1: it's maturing and it's becoming very popular. Hard assets are

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Speaker 1: very popular to both owners but also funds like ourselves.

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Speaker 1: And what would be some examples like a toll road, pipeline,

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Speaker 1: what so UH renewable energy projects, solar, wind, hydro, UM,

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Speaker 1: Social infrastructure so things like hospitals, schools, courthouses UM and

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Speaker 1: then civil infrastructure projects which would be roads, bridges, light

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Speaker 1: rail systems, things like that UM. And what's attractive to

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Speaker 1: us UM. You know, there's probably three main things. First

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Speaker 1: is duration UM as a as a life co. Our

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Speaker 1: liabilities are long so whether they can life insurance company correct,

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Speaker 1: so whether they come from the life insurance products that

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Speaker 1: we sell or our pensions and benefits programs. Our liabilities

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Speaker 1: are long dated. And infrastructure assets provide long dated assets

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Speaker 1: or long dated paper that we can match against those assets.

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Speaker 1: So there's twenty thirty year paper, so that for sure

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Speaker 1: is attractive. And to stop before you move on to

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Speaker 1: the to number three, what kind of return can you

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Speaker 1: on average get right now? Because that's another big story.

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Speaker 1: Reach for yield global bomb markets, government bonds that yields

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Speaker 1: are solo or negative. What can you get in infrastructure

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Speaker 1: projects in Canada? So you know infrastructure, you're the yields

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Speaker 1: have have compressed and they are you get a yield

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Speaker 1: over the corresponding corporate curve. We as the corporate curve moves,

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Speaker 1: so to our yields. So today you're probably looking on

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Speaker 1: a twenty year deal in the low two hundreds as

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Speaker 1: a spread over over governments, that's probably you know, fifty

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Speaker 1: two sixty over the corresponding corporate curve. As the curves

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Speaker 1: move in or move out. Our spreads moving or move out,

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Speaker 1: but are the premium over the curve. We try to

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Speaker 1: keep fairly consistent and UM these are high quality assets,

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Speaker 1: so we're not getting huge returns. These are are pretty

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Speaker 1: narrow returns, but they meet our portfolio nicely. You mentioned

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Speaker 1: renewable energy and I'm wondering how that fits into the

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Speaker 1: context of Canada as being a major fossil fuel producer.

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Speaker 1: So uh, I think a number of the Canadian provinces

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Speaker 1: have really made an effort over the last few years

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Speaker 1: to wean themselves off carbon and to um develop sources

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Speaker 1: of production and generation that is it's green and is redowable. So,

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Speaker 1: whether it's through the the fit feeding terror program that

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Speaker 1: Ontario has UM or some of the calls that you

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Speaker 1: see have made, there's been a number of new projects

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Speaker 1: UM wind solar especially that have been developed to UM

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Speaker 1: allow the government to to allocate a certain percentage of

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Speaker 1: their of their energy to renewable sources. So when you

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Speaker 1: are looking for projects, what obviously the turns important, But

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Speaker 1: you just said you've got yourself in a range, So

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Speaker 1: then what do you look for. Is it the kind

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Speaker 1: of project, is it the location is that the people

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Speaker 1: running it, because you're gonna put some real money to

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Speaker 1: work for people are going to count on those returns.

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Speaker 1: Is a big responsibility. How do you make that selection?

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Speaker 1: The partner that you're going to be working with the

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Speaker 1: equity sponsor is important, um, and who their partners are

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Speaker 1: in terms of who's the builder and who's the operator, um,

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Speaker 1: those those are important. The Kingdom market has matured so

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Speaker 1: that and it's a fairly small market, so you know

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Speaker 1: them and they're all fairly um competent um. Really, you know,

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Speaker 1: what we look for over and over and we say

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Speaker 1: this to the authorities that are bringing the projects forward

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Speaker 1: and the sponsors that are that are developing them is structure.

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Speaker 1: So we're real estate is location, location, location for us,

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Speaker 1: project financial structure, structure, structure. So in order to UM,

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Speaker 1: you know, to achieve the let's say the rating, the

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Speaker 1: underlying credit rating and therefore the pricing that they want

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Speaker 1: from us, UH, structure of the deal has to be

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Speaker 1: properly structured, has to be attractive to us. They need

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Speaker 1: to know what structural elements are key and what ones

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Speaker 1: can we concede on or not as important to us.

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Speaker 1: And and that's really just a communication, UM, just developing

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Speaker 1: relationship over time, they get to know what it is

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Speaker 1: that we look for, and we know what is they're

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Speaker 1: going to offer, and where the pinch points are going

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Speaker 1: to be, and then really trying to make sure it's

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Speaker 1: structured properly. Can you offer up a specific example of

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Speaker 1: a project that you recently have been involved with and

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Speaker 1: how that worked out, and then maybe that can be

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Speaker 1: used to illustrate some of the concerns that you have

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Speaker 1: for projects in the future. Uh So last year UM,

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Speaker 1: in twenty fifteen, there were a number of what are

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Speaker 1: called mega projects done. One of them was the Champlain

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Speaker 1: Bridge in Montreal. It's a massive, multi billion dollar project. UM.

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Speaker 1: The long term financing piece was a very large piece

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Speaker 1: and we took a fairly significant investment in it. And

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Speaker 1: you know, it was a it's a complicated project. It's

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Speaker 1: a bridge over a river. UM. So you had to

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Speaker 1: understand those risks of building in a river. It was

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Speaker 1: tying into existing highway systems, there was an existing bridge

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Speaker 1: that was being replaced, it was going to involve tolling.

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Speaker 1: UH those are some of the risks that you had

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Speaker 1: to get your head around to UM to sort of

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Speaker 1: understand whether or not investment you wanted to pursue. It

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Speaker 1: was structured in a way that UM provided us with

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Speaker 1: the comfort that we needed to make sure that in

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Speaker 1: any sort of downside scenario we were still as lenders

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Speaker 1: going to be protected and UM that was a project

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Speaker 1: that really worked out well, I think for all all involved. Well,

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Speaker 1: it seems the fact that you're that you have a

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Speaker 1: government committed to the fiscal stimulus spending is a huge

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Speaker 1: plus for anybody looking for projects. There are you know,

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Speaker 1: many countries around the world say they that that's what's

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Speaker 1: needed because the central banks don't have a lot more AMMO.

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Speaker 1: But it certainly the United States we've had a tough

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Speaker 1: time at the federal level getting too much that off

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Speaker 1: the ground. You know, Canada's been um I think a

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Speaker 1: leader recently at the senior levels of government in terms

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Speaker 1: of providing that sort of funding for these projects. And

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Speaker 1: you know, if anything, it doesn't we don't feel that

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Speaker 1: it crowds us as lenders out. In fact, it does

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Speaker 1: the opposite, we believe, UM it allows projects to move

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Speaker 1: forward that maybe wouldn't otherwise go forward because a number

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Speaker 1: of the junior levels of government where there's means palties.

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Speaker 1: They have limited abilities to raise to raise revenues through taxation,

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Speaker 1: and so without a contribution from the senior levels of government,

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Speaker 1: these projects like light rail projects may not move forward.

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Speaker 1: And so for you know, from our perspective, you know,

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Speaker 1: the stimulus spending actually increases the pipeline of opportunities that

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Speaker 1: we will see. Does it also increase the interest level

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Speaker 1: of foreign investors in infrastructure projects in Canada? I think

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Speaker 1: what in so there's a great deal of foreign interest

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Speaker 1: in our transactions. I think what is attractive to them

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Speaker 1: is good pipeline. So that helps with the pipeline, but

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Speaker 1: also the fact that we have a good history of

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Speaker 1: doing deals and a good history of closing deals. Not

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Speaker 1: deals don't just get announced, but they get closed. There's

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Speaker 1: less political interference. Um, you don't run the risk of

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Speaker 1: a project starting and then stopping. Canada's got a very

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Speaker 1: good history of of actually closing and delivering on their projects.

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Speaker 1: Is it Does it help it? I mean that the

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Speaker 1: Canadians are um centered along the border with US and

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Speaker 1: no otherwords, more more kightly living together. In some sense,

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Speaker 1: it's a huge country and as a smaller population, seems

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Speaker 1: like there's a lot of support for this kind of

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Speaker 1: thing in Canada that maybe isn't always here in the US. Yeah,

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Speaker 1: I think so. I think, uh, you know, because of

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Speaker 1: the way as you described our population is, you require

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Speaker 1: a significant amount of infrastructure between those locations and to

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Speaker 1: get people and goods between locations from locations, uh you know, trade.

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Speaker 1: So I think our government's recognize that that that maybe

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Speaker 1: we're at a disadvantage relative to the U s which

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Speaker 1: has so much more dense density in certain certain areas

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Speaker 1: and and so um you know. I think that over

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Speaker 1: is the overriding one of the overriding issues with with

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Speaker 1: why there's been such a positive spending in Canada. I

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Speaker 1: want to thank you very much for spending time with

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Speaker 1: us and enlightening us about infrastructure investment in Canada. Bruce Anderson,

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Speaker 1: Managing Director, Project Financi. It's an infrastructure for manual life

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Speaker 1: doing business in the United States Center with the John

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Speaker 1: Hancock as the brand. This is taking Stock, We take

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Speaker 1: you to the clothes. This is Bloomberg