(Recasts with analyst comment)

By Sarah Morris and Cameron French

MADRID/TORONTO (Reuters) - Canada's biggest pension
manager is spending nearly $900 million to raise its stake in a
lucrative Toronto-area highway, extending its growing
investment in infrastructure assets in a time of uncertain
equity returns.

The Canada Pension Plan Investment Board (CPPIB) agreed
Tuesday to buy a 10 percent stake in the 407 Express Toll Route
from Spain's Ferrovial for C$894 million ($876
million)

The deal will boost the fund's stake in the 407 ETR -- a
Toronto-area toll road that generated C$560 million in revenue
last year -- to 40 percent once it closes a previous deal with
Australia's Intoll group . Under that deal, CPPIB
agreed to buy a 30 percent stake in the highway for C$3.5
billion.

"We believe 407 ETR is an attractive infrastructure asset
and is a strategic fit with CPPIB's portfolio and long-term
investment mandate," Andre Bourbonnais, the board's senior
vice-president of private investments, said in a statement.

Highway 407 curls around the northern edge of the Greater
Toronto Area, which has a population of about 5.5 million and
is Canada's largest urban area. The road opened in 1997 and was
leased to private investors in 1999 by the province of
Ontario.

LONG-TERM VERSUS LOW YIELD

CPPIB has ranked as the world's top private equity
investors over the past year and covets long-term assets with
predictable cash flow.

"What this investment drives at is how some of these large
funds and investors in general are grappling with a world of
very low (bond) yields, and potentially mediocre equity
returns," said Doug Porter, deputy chief economist at BMO
Capital Markets in Toronto.

"They're looking further and further afield into other
kinds of investments."

Ferrovial put the stake in the toll highway up for sale in
March as part of a strategy to sell assets to cut debt.

Before the two CPPIB deals, Ferrovial owned 53.2 percent of
407, while Intoll owned 30 percent, and Canadian engineering
firm SNC-Lavalin had 16.8 percent.

After the deals close, Ferrovial, through its Cintra unit,
will still rank as the main shareholder with 43.2 percent.

"Our intention is to use the funds from the operation for
other projects such as paying down corporate debt," said Inigo
Meiras, chief executive of the infrastructure company.

CPPIB invests funds not needed to pay current benefits to
pension holders. The Canada Pension Plan fund held C$129.7
billion as of June 30.

The investment fund was a partner in the largest leveraged
buyout of 2009 -- the $4 billion acquisition of U.S.-based IMS
Health Inc, a prescription drug sales data provider.

($1=$1.02 Canadian)
(Editing by Frank McGurty)