Canada Pension Plan Investment Board, among the world's most sophisticated institutional investors, sees its allocation to infrastructure potentially outpacing its overall asset growth. It may consider Belt and Road projects, but India is currently its main focus when it comes to Asian infrastructure assets.
CPPIB is Canada's biggest retirement fund with C$325 billion ($264 billion) of assets under management. Of this total, C$25 billion invested in infrastructure, and a quarter of that is in emerging markets.
“The total infrastructure portfolio will certainly grow quite rapidly, keeping pace with and maybe outpacing the growth of the fund itself,” said Alain Carrier, head of international at the fund.
He was speaking yesterday (September 21) on a panel about China's Belt and Road infrastructure initiative at the 'Think Asia, Think Hong Kong' conference in London, hosted by the Hong Kong Trade and Development Council.
Known for its expertise in direct and co-investments, CPPIB has been investing in infrastructure since around 2005.
Moreover, it has 15%-20% of its total portfolio in emerging markets, noted Carrier, who is based in London. A substantial chunk of that is in Asian assets, to which CPPIB's exposure has been growing via its Hong Kong office and the Mumbai branch it opened in 2015.
Carrier said: “We see ourselves being able to continue investing in emerging markets over the next five to 10 years at a really rapid pace, though we feel our [emerging markets] exposure in the infrastructure portfolio is probably adequate."
One challenge CPPIB faces in expanding its overall infrastructure portfolio in particular is finding large enough deals; transactions typically need to be at least C$500 million to gain its participation, said Carrier.
That is one reason why the pension fund may find it harder to find suitable assets in emerging markets, where greenfield (ground-up development) projects are common. Another is that such projects carry more risks than existing, brownfield projects, such as construction delays and the danger of political volatility during the building phase.
Other investment specialists have argued that more risk mitigation is needed to give investors more comfort to take on such developments.
Greenfield deals in emerging markets have not been a key area of focus for CPPIB, confirmed Carrier, although it has made such investments in other areas of the portfolio and is looking to do more.
As a result, countries related to the Belt and Road initiative do not feature today among the fund's core infrastructure investment markets, he said. “But over time we would look to focus on one or two of these markets where if we see the right types of projects with the right scale, we would have an interest.”
CPPIB's main exposure to EM infrastructure is in South America (notably Chile and Peru) and India. It is relatively highly concentrated when it comes to infrastructure investments, said Carrier, because it wants a high level of comfort and familiarity with the markets it allocates to in this asset class.
The fund finds India attractive because of the country's potential for long-term value creation, he noted, pointing the fact that it has one of the biggest infrastructure deficits in the world.
“Unlike China, India does not have the capital to self-fund its own infrastructure, and must rely on international capital,” said Carrier, hence it has a strong legal framework in place to guarantee an investor's returns.