CPP Investments says LNG Canada offers ‘attractive return potential.’ Critics say it’s not risk-free. What the US$3.1B deal means for your pension

While the CA$3.1 billion total reflects the group’s combined investment and the announcement doesn’t disclose CPP Investment’s share of the commitment, it does raise questions about where Canadians’ pension money goes and who decides how it’s invested.

What these institutional investors are buying

As a group these investors are acquiring a 49.9% stake in a Mitsubishi holding company that owns 15% of LNG Canada. The deal gives them an indirect interest in one of Canada’s largest liquefied natural gas projects — and Mitsubishi (NYSE:MUFG) doesn’t relinquish control. Mitsubishi retain majority ownership of the holding company and keep its full allocation of LNG production.

Located in Kitimat, B.C., LNG Canada processes natural gas into liquid form so it can be shipped to international markets. In September, the project’s partners approved a second phase that would double annual production capacity to 28 million tonnes. Mitsubishi expects the additional production to begin in the early 2030s.

Who decides where CPP money goes?

The CPP Investment Board, also known as CPP Investments, manages the portion of funds that the Canada Pension Plan (CPP) does not currently need in order to pay benefits. CPP Investments’ mandate is to maximize investment returns without undue risk of loss and the aim to is help support current and future beneficiaries.

Although the Canadian government established the organization, CPP Investments operates at arm’s length from federal and provincial governments. As such the management for this investment firm reports to an independent board, and the fund’s assets are segregated from government money. That means the decisions made by CPP Investments — including the decision to take a minority stake in a firm with ties to LNG Canada — are based solely on the firm’s investment mandate and these decisions are completely independent of government spending decisions.

In a statement released about the acquisition, Managing Director, Head of Real Assets Credit for CPP Investments, Geoff Souter, explained that the decision to invest came from the appreciation of LNG Canada as a strong investment opportunity.

“LNG Canada is a high-quality, globally strategic asset with strong long-term fundamentals and attractive return potential for the CPP Fund,” said Souter. “We see this as a compelling opportunity to invest at scale here in Canada alongside Mitsubishi Corporation, Blackstone and our Canadian peers.”

What could affect the investment?

The expansion offers potential returns, but like any investment, it also carries risks.

The Institute for Energy Economics and Financial Analysis released a report in September that warns how Phase 2 of LNG Canada plans faces different conditions from the original project. This includes higher construction costs, trade uncertainty, and more competition — all of which can affect LNG Canada’s financial performance. Those risks do not mean the investment will lose money, but they could make the expansion less profitable than expected.