The October elections that brought new Canadian Prime Minister Justin Trudeau to power also created a large Liberal majority in Canada’s Parliament. This will help the Liberal party advance its agenda, which will include an annual C$10 billion ($7.74 billion) budget for infrastructure. The party’s plan is to pay for these projects by using various pension funds.

Improvements in infrastructure will provide a huge opportunity for pension fund investment; the Liberal Party has promised this budget regardless of whether there is a deficit or not. This message resonated in cities like Toronto and Montreal where many roads, bridges, and city facilities are subpar and dated.

The issue with using pension funds for investment is that most infrastructure is built without the intent of future profits. For example, hospitals, roads, and schools can all be utilized without cost. Thus, the government is the only entity providing the pensioners with returns on these projects.

The opposite situation exists for a toll road or stadium, because citizens pay for the privilege of using these facilities.  Consequently,  projects like these have greater potential for revenue, but many pension funds do not want to invest in stadiums either.

The problem is that facilities like stadiums are incidental; a sports fan is going to a stadium to see their team play, not specifically to see the stadium. Stadiums are also a potentially risky venture because they are extremely expensive, which gives sports teams an extraordinary amount of bargaining power with city governments. If a team is unhappy, they can move elsewhere, or get the owners to negotiate contracts that favour the team.

So, while pension fund investors value infrastructure assets for both their long-term returns, and guaranteed regulatory frameworks, they also seek large equity stakes in these projects. Because of this, it’s unclear whether or not all of these projects will benefit the country financially. Pension funds will help to jumpstart many of these long-needed projects, but one can only hope that the benefits outweigh the potential costs.