PSP Investments, Canada’s fourth biggest public pension manager,* has opened an office in Hong Kong – its first presence in Asia – and has already made at least one senior hire.

John Kim joined the C$159 billion ($119 billion) fund in February from Dutch private equity firm AlpInvest Partners as a senior director, according to his LinkedIn page. But it is understood that he will not be running the office and that more executives will be coming in; indeed, PSP has taken up several suites' worth of space in Prosperity Tower in Hong Kong's Central district.

Kim had been a principal for co-investments at AlpInvest, according to Bloomberg. His expertise is thus well suited to the Canadian public pension plans’ yen for co- and direct investing in private markets, and for putting investment specialists on the ground.

A PSP spokeswoman declined to comment for this article.

The Montreal-based fund had indicated in 2017 that it wanted to establish an Asian presence as early as last year, and had initially also been considering Singapore as a potential location. Hong Kong follows the opening of branches in London and New York in fiscal year 2017.

It also comes after another strong year performance-wise for PSP in fiscal year 2018, when it recorded a 9.8% one-year net portfolio return and a 10.5% five-year net annualised return. Infrastructure, real estate private equity and natural resources were the leading performers, with returns of 19.3%, 13.6%, 12.6% and 11.2%, respectively in the 2018 fiscal year.

It, therefore, seems likely PSP will seek to build its exposure to Asia-Pacific private markets, something its hire of Kim would seem to confirm.

The fund's Asia-Pacific exposure varies widely by asset class – as of March 31, 2018, it stood as follows:

  • Of its C$23.2 billion in real estate assets, 10.3% was in ‘emerging countries’.
  • 16.5% of the C$19.4 billion it has invested in private equity is in emerging markets and 2.4% is in Asia
  • 6.3% of its C$15 billion of infrastructure assets is in Asia and Oceania
  • Just 0.9% of its private debt assets are in Oceania (the rest being held in Europe and North America)
  • Most (60.7%) of its natural resources portfolio is in Australasia

PSP appears to be taking a similar route to other large Canadian retirement funds, which continue to build assets and talent in the region.

Ontario Teachers’ Pension Plan told AsianInvestor just last week that it was eyeing more offices and a substantial increase in headcount in the region in the coming years, with a focus on private markets. And other Canadian funds – including CDPQ, CPPIB and the Healthcare of Ontario Pension Plan – are moving to raise their allocations to Asian assets.

HONG KONG PREFERRED

PSP’s choice of Hong Kong for its first Asian presence reflects that of CPPIB and Ontario Teachers and indeed of most Western institutional investors. The move suggests that PSP will also particularly focus on the large markets in North Asia, most notably China.

The Chinese territory makes sense as an asset owner’s regional headquarters for a number of reasons, several senior fund executives told AsianInvestor on condition of anonymity. The most obvious one is the city’s proximity to mainland China.

“China is such a large and strategic market that it’s hard to ignore from an investment perspective,” said the Hong Kong-based head of business development for Asia at a big private equity manager. Hong Kong is also closer than Singapore to the other very large markets of Japan and Korea, she added.

Most asset owners are going to want to invest in China above all for the biggest opportunities, agreed the London-based global head of sales at a US asset manager.

Moreover, many Chinese companies are structured in or based offshore in Hong Kong, the Asia head of business development said, so being based there is both strategically important and helpful from a practical point of view for private equity and property investors.

Singapore, meanwhile, makes sense if an asset owner is looking to Southeast Asia and at frontier markets in that region. Another factor may simply be the lifestyle choice of the senior executive who will be leading the office. In addition, the government in Singapore often offers incentives such as tax breaks for fund houses that set up in the city-state.

*The Public Sector Pension Investment Board invests funds for the pension plans of the Public Service, the Canadian Armed Forces, the Royal Canadian Mounted Police and the Reserve Force.