Canada Pension Plan Investment Board is reportedly considering setting up an office in Beijing. It would be the huge fund’s first branch in mainland China, fourth in Asia Pacific, and very much in line with its collaborative investment strategy.
Of course, such a move would take substantial time and effort, even for an institution with the experience and resources of Canada’s biggest pension scheme; it has C£369 billion ($276 billion) under management and has had a presence in Hong Kong since 2008.
And the prevailing geopolitical turmoil and uncertainty, notably the US-China global trade tensions, are unlikely to be accelerating such major decisions. Certainly, the asset management industry as a whole appears to be in cost-containment mode.
Still, if CPPIB were ultimately to set up a mainland branch, it would make a lot of sense, as Suyi Kim, the institution's Asia-Pacific head, suggested in an interview with Bloomberg this week, though the fund could not immediately be reached for comment.
CPPIB already held some $28 billion of Chinese assets as of October last year, a figure that could triple by 2025 as part of ambitious plans to expand in emerging markets. It owns mainland bonds and stocks, private equity and real estate.
At the time, the fund had 15% of its assets invested into emerging markets, but aims to raise this by up to 33% by 2025. China and India are likely to account for the lion’s share of this figure; China alone now accounts for 10% of AUM, Alain Carrier, CPPIB's head of international, told AsianInvestor late last year.
Similarly, other Canadian pension schemes have indicated plans to build out their Asia exposure, albeit carefully, amid the prevailing geopolitical turmoil. They include Healthcare of Ontario Pension Plan, La Caisse de Depot et Placement du Quebec (CDPQ), Ontario Municipal Employees Retirement System, and Public Sector Pension Investment Board.
Adding a mainland branch to regional offices in Hong Kong, Mumbai and Sydney would also fit with the approach CPPIB takes to investing: to do so directly and in a hands-on manner, with large, well-resourced local teams.
Moreover, a new presence in Beijing would be the first for any of the 10 big Canadian pension funds – only CDPQ now has a mainland branch, in Shanghai.
Plus it would seem to fit with CPPIB’s existing relationships with Chinese policy-makers, and potentially further strengthen such ties.
For example, CPPIB signed a memorandum of understanding in September 2016 for three years with China’s National Development and Reform Commission. The fund provides its expertise to help Chinese policy-makers as they address the challenges of China’s ageing population, including pension reform.
This is typical of the Canadian model, industry experts note.
Canadian pension funds take a view well beyond simply investing in their target markets, said Sheila Patel, Singapore-based chief executive of international and global co-head of the client business at Goldman Sachs Asset Management (GSAM).
“[Canadian funds’] thinking is that pensions reform will be important for future economic development [in places like China and India],” she told AsianInvestor in October last year. “They have an extremely long-term focus and thought process on what will benefit emerging markets in 15 to 20 years.”
They help other governments work on retirement system reform, such as by providing actuarial expertise, noted Patel.
And such initiatives are not confined to Canada’s biggest retirement players. “We have devoted intellectual capital and resources to the issue of how we can work with countries in emerging markets to develop their institutions, so we can become trusted partners,” said Hugh O’Reilly, chief executive of OPTrust, another Canadian pension plan with some C$20 billion under management.
For all these reasons, public institutions in Asia hold Canadian funds in high regard and want to work with and learn from them – as do their global peers.
“Having a presence in Asia for several years now has given the larger Canadian pension funds’ investment teams a more direct perspective on the region than most of their global asset owner peers,” said Lionel Johnson, president of the San Francisco-based Pacific Pension & Investment Institute.
“And as they’ve invested directly, they’ve been able to more closely monitor and understand the changes in the local markets.”
Ultimately, then, it seems only a matter of when – not if – CPPIB sets up in mainland China. But it will be in no rush to do so, in line with its steady, long-term approach elsewhere.