Hong Kong, the first international office of Canada Pension Plan Investment Board (CPPIB), will still be the retirement fund’s investment stronghold in its drive to hunt for supreme returns in Asia.
“Regardless of what happens in Hong Kong, the location of Hong Kong will not change; it has the best accessibility to North Asian countries, which are the largest economies within Asia,” said Suyi Kim, Asia head of the C$409.5 billion ($313.5 billion) pension fund, at the Asian Financial Forum in Hong Kong yesterday (January 13).
Having gone through weekly episodes of political turmoil since the second half of last year, Hong Kong has been thrown into its first recession for a decade as the local economy shrank 3.2% in the third quarter.
But that doesn’t seem to have shaken Kim's confidence in the city.
“We have an office in Hong Kong, and it will continue to be the largest office [in Asia],” she said, adding that the office now houses 150 staff, who speak 14 different languages.
“Hong Kong has attracted the best talent … It's really hard to find high calibre talent in any markets. It was a no-brainer to start in Hong Kong,” she said.
The city has served as a gateway for the fund to access China and other Asian countries since Kim set up the office 12 years ago. It also operates in Mumbai and Sydney, where CPPIB has around 10 staff.
GROWTH IN ASIA
Over the past few years, CPPIB has greatly increased its investments in Asia. It now has about 27% of its AUM invested in Asia, an allocation Kim said is higher than any western asset manager.
Under our 2025 investment strategy, I won't be surprised if our investment in Asia more than doubles what we have currently.
Compared to just three years ago, its current allocation in Asia is almost 10 percentage points higher than that in 2017, when it stood at 17.7%.
“We plan on continuing to expand our investments in Asia,” Kim said, “[Under] our 2025 investment strategy, I won't be surprised if [our investment in Asia] more than doubles what we have currently.”
Warehouses and distribution centres, for example, are assets in which CPPIB has expressed interests. Jimmy Phua, head of real estate investments for Asia, said last year that the institution had looked at Southeast Asia in the hunt for logistics investments.
The ambitions make sense as the region has contributed greatly to CPPIB’s investment returns. On a global level, it achieved a 10.2% ten-year annualised rate of return.
“We talked about the overall fund generating more than 10% annually over the last 10 years, [but] in Asia we have been able to do better than that,” she said with a giggle, but didn’t divulge any specific figures.
She added that forging local partnerships is key to CPPIB’s Asia drive. The fund has previously told AsianInvestor that it is seeking to identify partners with which it can invest in emerging economies, including the ecommerce sector in India. Local financial services firm Kotak and KKR were some of the firms with which it worked for new opportunities in India.
As China has gradually opened up its domestic market to foreign investors, CPPIB’s investments in the world’s second-largest economy have quadrupled in the past four years.
Kim recalled how swiftly the reception of foreign investments in China has changed in recent years.
“Back in 2011, when we applied for a QFII [Qualified Foreign Institutional Investor allowance], we applied for $200 million dollars. I waited two years… and we got half of it approved,” she told the conference delegates, “Fast forward to 2018, we had a deal coming up in onshore China that was $1 billion. We applied for a $1 billion RQFII [Renminbi Qualified Foreign Institutional Investor allowance] and we got it in three weeks.”
“You can say that regulatory changes have a profound effect on investors,” Kim added.
The fund owns bonds, stocks, private equity and real estate in China, with some $28 billion of assets in the country as of October last year. The figure could triple by 2025 as part of CPPIB’s plan to expand in emerging markets.
It has reportedly considered setting up an office in Beijing – its fourth Asian office and first in mainland China – and has most recently appointed Yin Ke as senior advisor for China in October. The newly created role will be based out of Hong Kong with a focus on identifying opportunities across asset classes in China.