Canada Pension Plan Investment Board (CPPIB) plans to build out its investment set-up in Asia, including by expanding its capital markets team and potentially adding trading capabilities, in the face of an increasingly challenging market and geopolitical environment.
“We need to [introduce new strategies] step by step as we continue to expand in Asia,” regional head Suyi Kim told AsianInvestor late last month. “We already have most of the strategy teams on the ground [that we need] for private market strategies.”
The next step looks set to be headcount additions focused on listed assets, as the public retirement fund – the biggest of several large Canadian schemes – looks to continue its rapid growth in Asia Pacific. Of its C$410 billion ($301 billion) in assets under management, 28% is invested in the region, up from about 18% just three years ago.
Kim said in January that she would not be surprised if the fund's Asia exposure more than doubled under its 2025 investment strategy. Though that was admittedly before Covid-19 became a pandemic, which has thrown up obstacles to such ambitions for international investors.
CPPIB intends to add to its capital markets team in Hong Kong later this year “if the travel situation allows it”, Kim told AsianInvestor in June.
However, a surge of new Covid-19 cases in the past week in the city has led to severe restrictions being imposed from midnight on Tuesday (July 14) amid fears of a third local wave of the outbreak.
CPPIB does not currently execute trades in Asia, but it did receive a securities dealing (type 1) licence last year from Hong Kong’s Securities and Futures Commission. This allows it to buy and sell listed securities in the territory.
The fund declined to specify what kind of investment capabilities and strategies – or how many more staff – it was looking to add in Asia in the near term.
Capital markets teams typically enable institutions to run tactical and dynamic investment strategies, such as absolute return portfolios, including elements such as currency overlays and hedging.
When it comes to establishing securities dealing desks in Asia, Canadian pension plans are ahead of the curve among Western asset owners – and even some third-party asset managers. One of CPPIB’s peers, Ontario Municipal Employees’ Retirement System, started building a capital markets team in Singapore in July last year.
Moreover, CPPIB has hired Anuj Girotra from US fund house Capital Group to lead its active fundamental equities and relationship investment programmes in India. These programmes focus on public equities, private investments in public equities and pre-IPO investment opportunities.
Girotra joined in May, according to his LinkedIn page, and will be looking to hire more executives to support these strategies. His role is a newly created one, said a CPPIB spokeswoman, declining to comment on how those investments in India were overseen before he came on board.
Girotra was with Capital Group for 12 years, heading its India private markets business.
As of March 31, CPPIB had C$10.3 billion invested in India, across real estate, infrastructure, public and private equities, funds and co-investments and credit.
The fund now has around 170 staff in the region across Hong Kong, Mumbai and Sydney, largely focused on illiquid investments.
Kim has overseen the CPPIB’s rapid expansion in Asia from almost zero assets in Asia in 2008, when she set up the Hong Kong office, to $85 billion today. Yet she concedes that the next expansion phase may be less swift.
CPPIB posted 3.1% return for fiscal 2020 (the year to March 31), having taken a hit from the coronavirus-driven equity market crash. Yet it has still posted annualised gains of 9.9% over 10 years and 7.7% over five.
“Going forward, it will be challenging to repeat that [over the next decade],” Kim said. “We’re seeing slowing economic growth around the world and in Asia. We’re seeing a low-interest-rate environment and rising nationalism, which leads to geopolitical tensions and makes foreign investors’ jobs more difficult.”
Asked how CPPIB might seek to address this tricky investment landscape, Kim pointed to the flexibility of the fund’s investment set-up.
“With 20 plus strategies from public to private markets, if the public market gets expensive we can switch to the private market or if the private market gets expensive we can wait for the entry point in the public market," she said.
“But we are a very long term investor as well. Once we make investments, we can hold them from private through to public markets. We invested in [Chinese ecommerce giant] Alibaba way before its IPO but we continued to hold it after the listing because we saw the value creation.”
Suyi Kim is profiled in AsianInvestor's list of 20 standout investors from the past two decades chosen for our 20th anniversary magazine issue, which has just been published. The article will also appear online and the e-magazine is available to subscribers.