The investment manager for Canada Pension Plan, which has $165 billion in AUM, has committed $400 million to a China logistics project, saying it expects rapid growth in the sector.
The Canada Pension Plan Investment Board (CPPIB), which has a $17.7 billion property portfolio, has been a partner of ASX-listed property firm Goodman Group since September 2009.
CPPIB and Goodman had already committed a combined $500 million to Goodman China Logistics Holding (GCLH), a fund investing in warehouse and logistics distribution centres in China. And Goodman and the CPPIB yesterday noted they had doubled this investment (CPPIB has committed an extra $400 million).
Philip Pearce, Goodman's Greater China managing director, notes the fund buys land from the government and designs, builds and leases warehouses as storage facilities for third-party logistics providers and end-users. Typically these hold fast-moving consumer goods for domestic Chinese consumption.
Goodman employs 315 people in Greater China, including those to manage properties and carry out maintenance as well as architects and designers on the development side. It has managers to oversee ownership and a fund management group to monitor performance.
Pearce says the fund has seen total return (income and capital growth) of over 20% since inception. "There is a real shortage of warehousing in China," he adds.
"We have a development-led approach. There is a limited amount of investment-grade product to buy, and we believe the best way to assemble a portfolio is to build it ourselves, then we have control over quality and design."
Goodman describes itself as the world's biggest logistics developer. It recently unveiled a venture in Australia with Malaysia's Employees Provident Fund, which it believes can reach $1 billion. It also has a relationship with Dutch pension fund managers APG and PPGM, and has worked with CIC and sovereign wealth funds in the Middle East.
Mark Machin, president of CPPIB Asia, says its additional $400 million equity investment "reflects our belief that China's logistics sector will continue to grow as demand for modern, efficient logistics facilities is being fuelled by a rising domestic demand for consumer goods".
He adds he expects GCLH to continue to perform well over the long term "through its participation in the rapid growth of this market".
The CPPIB is based in Toronto and invests funds not needed by the Canada Pension Fund to pay benefits on behalf of 18 million contributors and beneficiaries.
As at the end of June this year the CPP Fund had $165.8 billion. Of this, 50.9% is invested in equities, 32.7% in fixed income and 16.4% in real assets (including property and infrastructure).
Goodman runs a similar logistics fund for Hong Kong, which has around $2 billion. Pearce expects that together its Hong Kong and China logistics strategies will have hit $5 billion within five years.
It notes it has over four million square metres of land in China. GCLH has invested in 12 logistics projects across Shanghai, Beijing, Tianjin, Kunshan, Chengdu and Suzhou.
While CPPIB has first right of refusal over GCLH opportunities at present, Pearce says: "Eventually we will open it up to other institutional investors."