How could a U.S. sovereign wealth fund help to create infrastructure? Look to a train in Montreal

As far apart as former President Donald Trump and the Biden-Harris Administration are on most economic policy questions, there’s at least one idea they seem to agree on: The United States creating its own sovereign wealth fund.

China, Norway and many countries around the Persian Gulf have them. The funds pool government revenue — often from oil and gas resources — and invest it in everything from stocks to office buildings, soccer teams to infrastructure projects.

Neither the Trump campaign nor the Biden administration have offered many details about how exactly a fund like this would work in the States, though Trump has mentioned that a fund could invest in infrastructure.

Turns out, we don’t have to go far to see something similar to this in action. Just over the border in Quebec, the Canadian province’s pension fund is financing, building and operating a new light rail line around Montreal, and the construction process may take less than a decade.

The first portion of the Réseau Express Métropolitain (REM) automated train line opened last summer. It connects the suburbs south of Montreal to the city’s downtown. For Sonia Doucet, that meant a change to her commute. She used to be able to get a bus outside her apartment in the suburbs and take it all the way to a college downtown. Now, that bus takes her to the REM.

“Take[s] me a bit more time, but when you are in the REM, it’s pretty nice,” she said, while waiting at a REM station on a recent Wednesday. “It’s clean, it’s safe. The view is amazing.”

Doucet is right. The REM stations and trains feel brand new, and as the train glides over a new bridge above the massive St. Lawrence River, the view of downtown Montreal is pretty incredible. But like many transit projects, it took years to get to this point.

“So the idea actually emerged in 1962,” said Pierre Barrieau, a transit consultant and lecturer in transportation planning at the Université de Montreal.

Fifty years after those initial ideas for an automated train in the region, the plan finally got momentum in 2012, Barrieau said, when the Canadian federal government began discussing a light rail line to Montreal’s airport. Meanwhile, a suburban mayor was trying to get the private sector to build a separate line. Both were looking for ways around the provincial Quebec government, he noted.

“And that was a very bad vibe for the [Quebec] government, because it was demonstrating a failure for them of being able to get stuff done,” Barrieau said.

But the premier of the province at the time saw an alternative, Barrieau said. “And the alternative they had was the public pension fund.”

That fund is called the Caisse de Depot et Placement du Quebec, or simply, the Caisse. It was created by the provincial government in 1965 “to manage the assets of the Quebec Pension Plan, which is the provincial equivalent of Social Security in the States,” said Konrad Yakabuski, a columnist at Canada’s Globe and Mail newspaper. 

Unlike Social Security, the Caisse has acted more like a sovereign wealth fund, investing in stocks, private equity and real estate. However, it’s also a little different from big U.S. pension funds. It’s supposed to maximize returns, but also contribute to Quebec’s economic development. The Caisse had over $310 billion USD in assets last year.

“About 20% of that is invested in Quebec; the rest is invested nationally and internationally,” Yakabuski said.

About 10 years ago, the Caisse created a subsidiary, called CDPQ Infra, to not only invest in but develop and operate infrastructure projects, starting with the REM train system.

“The model is that we took on … essentially the most part of the risk, so the construction risk and the ridership risk of the project,” explained Noémie Brière-Marquez, director of public affairs for CDPQ Infra.

In exchange, she said the fund will get the potential benefits of the project, through fees paid by the region’s transit authority for each rider on the train. Brière-Marquez said the goal is an 8% return on investment.  

This quasi-public model for building infrastructure could be replicated in the U.S., argues Saule Omarova, a professor of law at Cornell University — in part, she said, because infrastructure projects are tricky. 

“They take a long time to build, and during that time, a lot of things can happen that might derail the project and might render the project less profitable,” Omarova said.

That makes private industry less likely to take them on. And while the public sector might be more willing, “politics is fickle,” she said, and elected leaders might not want to keep funding a long-term project. In 2020, Omarova outlined her idea for a “national investment authority” that could fund infrastructure and other major projects in the U.S.

Back in Montreal, concerns around continued government support for the REM project have been lessened by shifting the bulk of the financial risk to the pension fund. Still, the REM has not been immune to the problems that many transit projects face: cost overruns and delays. 

“We’re about five years late, a few billion dollars over budget, but the project is advancing,” said Pierre Barrieau, the transit lecturer and consultant.

COVID-19, supply chain issues and an unexpected discovery in a tunnel beneath Montreal all pushed back the project’s timeline. But right now, the nearly 42-mile network is scheduled to be completed in 2027, about nine years after construction began. By Canadian standards — and American standards — that’s not too bad.