Latin America: Interview: CDPQ seeks partners for long-term LatAm investments  

26 March 2018 - 12:00 am UTC

La Caisse de Dépôt et Placement de Québec (CDPQ) continues to grow its infrastructure footprint in Latin America.  As 2018 unfolds, the USD 233bn AUM institutional investor remains on the hunt for financial and strategic partnerships that combine funding and local expertise.  Senior VP Rana Ghorayeb, who manages CDPQ’s infrastructure portfolio, discusses opportunities and challenges in the region with Sara Rosner.


For pension fund manager CDPQ, investing in Latin America’s infrastructure provides exposure to the region’s long-term economic growth. The Montreal-based firm is looking to expand its team and presence, particularly in Colombia, Mexico and Brazil.

After setting up its Latin American hub in Mexico City in 2015, CDPQ now plans to open and staff an office in Brazil. The firm declined to provide specifics on the timing or number of people involved, but the reasons behind the move go back to its affinity for vibrant GDPs in the region.

After a two-year contraction, growth returned to the region in 2017 with a gross domestic product (GDP) expansion of 0.9%. GDP is expected to reach 2.7% by 2020, according to a World Bank report on the economic prospects of Latin American & Caribbean. Brazil is expected to double its GDP to 2% in 2018, while Mexico could see 2.6% GDP in 2019 from an estimated 1.9% GDP in 2017. Colombia, meanwhile, could see GDP of 2.9% this year, up from an estimate of 1.8% in 2017.

“Seventy percent of the growth will come from growth markets. Therefore, we need to position ourselves in them,” Rana Ghorayeb (pictured above), CDPQ’s senior vice president of infrastructure investment, tells Inframation. “Mexico and Brazil are some of the deepest markets with interesting fundamentals where we consider deploying significant capital. Colombia is also another priority country where we see the right fundamentals and believe we can invest.”

According to Inframation Deals, 209 Latin American infrastructure projects closed during 2017 with a total value of USD 57.74bn, up from 187 deals worth USD 50.05bn in 2016. Brazil, Colombia and Mexico had a development pipeline of more than 170 infrastructure projects in various stages of the procurement process.

Among its recent transactions, CDPQ announced a USD 250m loan to Colombian energy company Empresas Públicas de Medellin in January. The loan is part of a USD 1bn facility led by the Inter-American Development Bank Group backing to the 2.4 GW Ituango hydroelectric project. Ghorayeb declined to comment on the transaction.

“We…consider among other factors, all economic and social aspects of each one of these countries, such as population growth. All of these countries have a relatively young population,” says Ghorayeb.  

CDPQ aims to hire candidates and partner with companies in Latin America that offer local and cultural expertise.

“When you look at our deal teams, we have people that speak the language, understand the culture, and who are from the region. We also have people who have sector-specific experience,” Ghoyareb says.

Alonso García-Tamés, former CEO of Mexican state development bank Banobras, was appointed as managing director and head of Latin America for CDPQ in 2016 and is a prime example of the firm’s approach.

“He understands the market, the dynamics, as well as the players. He helps us identify and understand the risks inherent in these countries. He is part of the deal team and supports us by identifying those risks,” Ghorayeb. 

Partnerships remain the cornerstone of CDPQ’s expansion in Latin America.

“Our approach is always to invest with local partners and we believe that the quality of local partners is also rewarding for us. We think we can find like-minded partners in those countries,” Ghorayeb says.

Mexico platform
CDPQ’s co-investment platform with CKD Infraestructura México (CKD IM) reflects the firm’s strategy in Latin America. CDPQ and a group of Mexican pension funds that includes XXI Banorte, Pensionissste, SURA and Banamex committed USD 1.43bn and USD 1.38bn, respectively, to the vehicle, in 2015. The platform targets infrastructure investments in Mexico over five years and allows the pension funds to make indirect investments in the asset class. It also provides CDPQ with an on-the-ground view of transactions.

“On one hand, they provide us with real market intelligence that we wouldn’t get otherwise and we share with them our knowledge. It is an equal partnership that we really value,” Ghorayeb says. CDPQ is looking to deploy additional capital through the platform as it has already invested all funds allocated for the five-year window.

In October, CKD IM and CDPQ set plans to acquire an 80% stake in a 1,712 MW portfolio of wind and solar projects from Enel Green Power. The deal, which includes 1,283 MW of projects under construction, was followed by the partners’ participation in Red Compartida, a USD 2.3bn greenfield telecoms project.

Construction Risk & Diversification
CDPQ’s ability to take on construction risk in greenfield projects makes it unique among institutional investors that typically avoid non-operating assets.  

“We do differentiate ourselves when considering transactions that have construction or greenfield risk because we have built a team in CDPQ Infra that consists of 40 engineers who sit near the investment team,” Ghorayeb says. “They assist us when we are considering projects that have these complexities.”

The engineers have worked closely on the CAD 6.3bn Réseau Express Métropolitan (REM) electric light rail system in Montreal which will begin construction in April. CDPQ Infra is the owner-operator of the 67-km REM and is responsible for planning, financing and execution of the asset. A consortium comprised of SNC Lavalin, Dragados Canada, EBC, Groupe AECON Québec and Pomerleau won a tender process to build the REM, which is scheduled to go into operation in 2021.

“The investment team is also quite diverse — some of us also have engineering and construction backgrounds. That’s another way in which we differentiate ourselves,” says Ghorayeb, who earned a Master of Engineering in Construction Management from Concordia University and previously worked with construction companies Tridome and Groupe TEQ.

In addition to its initiative with CKD IM, CDPQ reportedly agreed to acquire a 49% stake in toll road Circuito Exterior Mexiquense (Conmex) in Mexico for an undisclosed price last month. Ghorayeb declined to comment on the transaction.

While the firm is infrastructure agnostic, the deal is emblematic of CDPQ’s pursuit of diversification within its infrastructure portfolio, which is allocated roughly 55% to energy and 45% to transportation.

“We spend a lot of time making sure we have a balanced portfolio. Latin America and other growth markets allow us to invest in other transportation assets which…counter-balance the energy investments,” Ghorayeb says.

CDPQ’s CAD 16.2bn infrastructure portfolio has grown by CAD 1.5bn since 2016 and represents 5.4% of the Caisse’ CAD 298.5bn in assets under management. The growth in the infrastructure segment reflects depositors’ growing appetite for the asset class, which has generated annualized returns of 10% for CDPQ since 2012, according to its 2016 annual report.  

 “Going in to these countries, there are some risks that we’re taking above what we would take in our country of origin in Canada. We would expect to get an additional return for the additional risk taken. Same goes for greenfield risk,” Ghorayeb says of targeting a range of returns.

Looking beyond near-term uncertainties
While Brazil, Colombia and Mexico rank among Latin American countries with robust infrastructure development programs, uncertainty in the wider economic and political scenario persists for investors.

Brazilian and Mexican presidential elections are set for July and October, respectively. Former President Ignacio Lula da Silva of Brazil’s populist Workers Party is leading the polls, despite a court ruling in January to uphold his conviction on corruption and money laundering charges related to the massive Lava Jato scandal. While the latest ruling is a further obstacle to his candidacy, observers note that as president, Lula could issue an executive order banning the sale of Petrobras assets and mandate the state-backed oil company to return to being the lead investor in offshore oil blocks.

“In Brazil, yes there is uncertainty, but we’re actively looking at it. It’s a country that has over 200 million people and a very important country economically,” Ghorayeb says.

Meanwhile, Andrés Manuel López Obrador of Mexico’s left-wing National Regeneration Movement party, is the front runner in that country’s presidential race. López Obrador has long been skeptical of opening up Mexico’s oil and gas industry to foreign investment and told a crowd in Washington D.C. in September that oil contracts signed after Mexico’s energy reforms in 2014 would be reviewed in order to ensure favorable terms for Mexico.

But CDPQ looks past short-term variables in Mexico.

“The key is the long-term investment approach. In order to be successful, you have to be ready to go through cycles. You have to be ready for the volatility,” Ghorayeb says. “That’s one decision an investor has to make, “Am I willing to take potential volatility going into those countries?’ Being a long-term investor allows you to grasp this approach much better than if you were a short-term investor.”