CDPQ, Canada’s second-largest retirement fund, has increased its investment focus on Southeast Asia of late, particularly via direct deals, as its continues to build its allocation to the wider region.
Big global allocators have tended to favour China and India, the biggest regional markets, but Indonesia and other Asean economies are attracting rising interest. Indeed CPDQ’s larger peer, Canada Pension Plan Investment Board (CPPIB), has just unveiled a new joint venture in Indonesia with logistics specialist Logos.
Anita George, deputy head of CDPQ Global, the fund’s international investment division, told AsianInvestor: “In the past two years we’ve really ramped up our direct investment in Southeast Asia.”
CDPQ now holds around C$5 billion ($3.9 billion) of assets in the region, she added, declining to say how much the allocation had grown since 2018. It now accounts for some 2% of the fund’s C$333 billion ($258 billion) global portfolio, and nearly one-fifth of its exposure to Asia as a whole.
That reflects CDPQ’s growing focus on emerging markets globally, and particularly Asia. It has roughly doubled its 7% allocation to emerging markets since 2016. Asia represents the bulk of that exposure, accounting for 11% of the fund’s assets, across Australia, China, India, Southeast Asia and Taiwan. The Asia exposure has grown 65% since 2016, said Mumbai-based George.
“For Asia, our exposure has gone up more than sevenfold in infrastructure and nearly tripled in private equity since 2016,” she added. “On the public side, the increase has mainly been in bonds.”
CDPQ has sharpened its focus on Southeast Asia in particular since 2018, George said.
“We see promising potential and we have spent quite a bit of time doing a deep dive across the different countries. And we have done some direct investments in logistics in Indonesia and in sovereign bonds.
“Southeast Asia is a very interesting region, given its economic growth, the population and the scope for demand in those economies,” added George.
The region also facilitates further geopolitical diversification. This makes sense, as a growing number of international companies are moving, or considering moving, some manufacturing operations away from China, for instance, to make their supply chains less dependent on one economy.
CDPQ has taken its usual steady, but deliberate approach to building exposure to Southeast Asia.
“We kind of wet our feet, get to know the countries, try to understand the landscape by investing in listed and liquid markets, such as sovereign bonds, both directly and via external managers,” George added. “And then we start to invest directly [in private assets].”
Like CPPIB, CDPQ partners Singapore-based Logos to invest in the region, specifically in warehouses in China, India, Indonesia and Singapore, having established the tie-up in 2016.
CPPIB, which inked its first agreement with Logos for Indonesia in 2017, will invest $200 million into its new JV, which plans to develop a diversified portfolio of facilities targeting third-party logistics, data centre and industrial tenants.
“Logos has identified a strong pipeline of opportunities for this new venture and will look to execute on this over the next 12 months,” said the Canadian fund in a release.
CPPIB has been bullish on the prospects for logistics assets in Southeast Asia for several years, Jimmy Phua, the fund’s head of real estate investments for Asia, had said in early 2019. He had pointed to Asia’s growing spending power, smartphone use and penchant for e-commerce being like rocket fuel for industries like logistics.
Other Canadian funds are also raising their focus on Southeast Asia. Ontario Teachers’ Pension Plan opened an office in Singapore in September to help target investments in that region, as well as in Australia, India and New Zealand.
Similarly, Singapore sovereign wealth fund GIC see Southeast Asia as offering strong opportunities. The region’s equity markets have largely lagged their North Asia peers in the rebound from Covid-19 pandemic, though that does somewhat reflect that some have been slower to shrug off the effects of the pandemic.