Two of Canada's leading pension funds, Caisse de dépôt et placement du Québec (CDPQ) and Ontario Municipal Employees Retirement System (Omers), are seeking to grow their allocation to Asia to capitalise on the myriad opportunities in the region.

Both have also turned up the spotlight on India in recent years, voicing ambitious medium to long-term targets for the country.

Leong Wai Leng

INCREASED ALLOCATIONS

“Over the past five years, we've actually doubled our investments in Asia,” said Leong Wai Leng, managing director and regional head for Asia at CDPQ. As of end-June, the C$390 billion ($307.4 billion) pension fund had 12% of its portfolio allocated to Asia Pacific.

Meanwhile Omers, whose net assets amount to C$114 billion as of end-June, has 10% of its portfolio invested in the region. The fund’s head of capital markets in Asia, Ashish Goyal, recently told AsianInvestor that he expected this to increase to 15% by 2025, while CEO Blake Hutcheson told Bloomberg earlier this year he expected this to go up to 20% over the next five to 10 years.

“Whether that 10% goes to 20% or not, the idea definitely is that over the next five years a significantly larger part of our balance sheet should be having exposure to this part of the world,” said its head of Asia infrastructure Prateek Maheshwari.

Leong and Maheshwari were speaking on a panel at DealStreetAsia’s Asia PE-VC Summit 2021 on Wednesday (29 September).

The investment experts highlighted a young population; GDP growth driven by urbanisation and a swelling middle class; and regulatory reforms as some of the factors that made these markets appealing.

Prateek Maheshwari

Leong highlighted Indonesia as a market that CDPQ was eyeing in Southeast Asia, saying the firm saw opportunities in the country across infrastructure, private equity, and fixed income.

SPOTLIGHT ON INDIA

Meanwhile, India’s desire to open its economy to private capital, especially in the infrastructure sector, makes Maheshwari particularly bullish on the country. “The privatisation plans in India are way ahead of many of the other countries,” he said, adding he expected other countries in Asia Pacific to follow India’s example in the coming years.

India’s latest budget was hailed by observers as a positive step in in attracting foreign private capital to support its infrastructure development.

Omers and CDPQ are not the only ones sold on India. Canadian peer CPP Investments, which opened a Mumbai office in 2015, had C$10.6 billion, or 2.3% of its assets, invested in India as of September 2020. Dutch pension fund manager APG has several local partnerships in the country, including a $1 billion mezzanine financing platform with Piramal Enterprises.

This prevalence of “like-minded investors” is another reason Omers is attracted to India, Maheshwari said. CDPQ and Omers are joint investors in Indian renewables producer Azure Power.

Asked how the funds were proactively pursuing further ESG-compliant opportunities in Asia Pacific, Maheshwari highlighted filtering at the deal evaluation stage, plus active engagement post-investment.

“Through our involvement at the board and a constant dialogue with the management, we try to see if there are aspects which can be enhanced from an ESG perspective,” he said.

Diversity, inclusivity, and fair play when it comes to tax jurisdictions are some of the current focus themes that Leong highlighted. “We've picked a handful because [ESG] is very, very broad and I don't think we are at the stage where we can do every single thing.”

Both leaders noted the complexities associated with promoting positive governance changes in locations where local culture influences business practices.  

“We, as global investors, have to be very cognisant of what are some of the local practices that we have to respect, and the universal values that have to be adopted. Everything else that falls in between is what I call the 50 shades of grey,” she said.

Maheshwari reiterated: “When you're looking at an investment, you need to be mindful of the local culture or some the aspects around local frameworks but making sure…not to compromise the core principles and underlying themes on which we work on.”