Canadian pension manager spends ‘time on the ground’ to pick Asia, EM equities bets

Emerging markets will see developments in the long term that can't be predicted today, so flexibility and an open mind are key to investing, says a senior executive from the $171 billion British Columbia Investment Management Corporation.
Canadian pension manager spends ‘time on the ground’ to pick Asia, EM equities bets

Emerging markets are constantly evolving so to assess stock market plays, it's important to be on the ground to understand the operating landscape, a senior executive from a Canadian pension manager told AsianInvestor.

“Emerging markets are dynamic and fast-paced. We believe there will be new developments and trends over the long term that can’t be predicted today, which makes flexibility and an open mind key to investing in this space,” said Jean-Christophe Lermusiaux, managing director, global emerging markets – public markets, at British Columbia Investment Management Corporation (BCI).

“We expect near and long-term growth opportunities for companies that serve the current demographics and growing populations in India and across Asia, particularly as the standard of living continues to rise.”

Lermusiaux noted that as an active institutional investor, an important part of BCI’s approach is spending time on the ground.

“Our analysis is complemented by in-person meetings in key emerging markets where we can conduct holistic due diligence," he told AsianInvestor.

“We engage directly with companies, suppliers, customers, peers, and analysts to build our understanding of the competitive landscape and key differentiators.

"It is about more than just the next quarter and, while growth is easy to find in many of these markets, we are looking for quality management teams, long-term cash flow, and solid performance."

The Canadian asset owner manages investments on behalf of British Columbia’s public sector. It manages public sector pension plans, insurance funds and special purpose funds for the British Columbia government.

It had C$233 billion ($171 billion) in gross assets under management at the end of March 2023.BCI has a combination of internally and externally managed strategies for emerging markets.  


About 59% of BCI's portfolio is in public market assets, which includes fixed income, equities and other strategies.

BCI launched its internally managed public EM equities strategy in 2022 as part of a broader strategy to bring in more assets in-house over the past eight years.

Over 82% of BCI’s total assets are managed in-house, up from 57% in 2016.

The money manager’s internally managed programme for public equities includes actively managed portfolios as well as indexing strategies.

Its approach for the actively managed internal equities strategy incorporates a combination of bottom-up and top-down methods.

“We use fundamental research to identify quality companies and growth stories, which are reconciled against country and sector-level macroeconomic indicators and long-term themes to gain confidence and manage risk. ESG [environment, social and governance] is embedded into the management of the strategy and fully integrated into the fund,” said Lermusiaux.

Asian countries combined account for around 73% of the global emerging markets active internal equities portfolio, BCI told AsianInvestor earlier, with India taking top spot in exposure among Asian countries.

“Asia is home to the combined largest middle class in the world and India’s middle class is projected to continue experiencing strong growth, said Lermusiaux, underlining the region’s investment appeal.

“We expect higher income per capita in India will drive demand for more discretionary consumer goods and retail, diversified financial services offerings, and foundational infrastructure,” he added.

A March report from BlackRock Investment Institute titled Demographic Divergence echoes that view: “In many emerging markets, the working-age population is still growing, giving them an economic advantage,” it said.

“We see opportunities in those that can best capitalise on it – for example, by improving workforce participation and investing in infrastructure – and outperform what markets have already priced.

"We think higher returns could be on offer in countries with greater demand for investment – like India, Indonesia, Mexico and Saudi Arabia.”

Indonesia is focusing on value-add and avoiding export of raw materials in mining and materials, which will create unique opportunities for investors. Image credit: Shutterstock


The higher returns potential also depends on whether a country’s investment in productive capital – like machinery, transport, infrastructure, housing, schools and hospitals – keep pace with population growth, the BII report added.

“The need for infrastructure and logistics is a challenge for emerging markets that is turning into an investment opportunity as the inflow of capital into these sectors becomes critical,” Lermusiaux said.

One example is demand for road infrastructure resulting from urbanisation and an increasingly mobile middle class.

India, for instance, is focused on infrastructure growth, including road construction projects, creating a unique opportunity for investors, noted Lermusiaux.

Indonesia and Vietnam also present attractive investment prospects based on the young median age of the population and significant resources, according to BCI.

“Indonesia is focusing on value-add and avoiding export of raw materials in mining and materials, which will require capital and create unique opportunities for investors,” added Lermusiaux.

Energy demand is also expected to rise substantially in countries with rapid population growth, such as India and Indonesia — by over 60% and nearly 40% respectively in the next 20 years, which will create further opportunities for investors, according to the BII report.


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