The Canada Pension Plan Investment Board (CPPIB) keeps expanding its investments in India. Given that the developing country is slated to become the world’s most populous, the pension plan wants to target specific growth trends, such as e-commerce, through local partnerships.

Other than facilitating growth by providing private credit for India’s emerging business sector, CPPIB is also making comprehensive investments into infrastructure as the backbone of further growth in other sectors, Scott Lawrence, managing director and head of infrastructure at CPP Investments, told AsianInvestor.

Scott Lawrence

On December 5 2019, CPPIB and the National Investment and Infrastructure Fund (NIIF) of India announced an agreement for CPPIB to invest up to $600 million through the NIIF Master Fund. The agreement includes a commitment of $150 million in the NIIF Master Fund and co-investment rights of up to $450 million in future opportunities to invest alongside the NIIF Master Fund.

The NIIF Master Fund invests equity capital in core infrastructure sectors in India, with a focus on transportation, energy and urban infrastructure.

“NIIF accelerates investment efforts in sectors of interest where we currently do not have platforms or partners such as airports. It also diversifies our Indian infrastructure investment footprint into sectors where we may not consider a direct investment in the near future due to lack of opportunities of scale [e.g. urban infrastructure, energy efficiency, water supply, waste management],” Lawrence said.

The opportunity to invest in, and alongside, NIIF complements CPPIB’s existing direct investment strategy in Indian infrastructure. It also enables the pension plan to deploy capital in additional projects and sectors across the country, providing further long-term opportunities to invest, according to Lawrence.

“India faces the same challenges as many other markets including consistency of regulation and community buy-in. The latter is critical for us to ensure the social and economic sustainability of projects and companies we invest in,” Lawrence said.

Financing can also be a challenge, with a lack of well-capitalised infrastructure developers and a relatively shallow bond market. At CPPIB, Lawrence sees this an opportunity to finance for the long term including, selectively, projects under construction which may be difficult for other investors.

COMPLIMENTING EXISTING PORTFOLIO

CPPIB has also invested in Indian roads to facilitate the transport of e-commerce, as well as other infrastructure investments in the country. Lawrence believes that NIIF offers complementary capabilities to CPPIB’s existing direct investment strategy in the Indian infrastructure space in several areas.

First, it provides a consultative approach to policy formulation to the benefit of all long-term institutional investors. Second, it reinforces CPPIB’s ongoing dialogue with key government stakeholders.

He points out that NIIF’s strategy is driven by its involvement at the policy formulation stage and conceptualisation and execution by “a tenured and well-regarded senior team in the industry”.

NIIF is a fund manager that invests in infrastructure and related sectors in India. An institution anchored by the Government of India, NIIF is a collaborative investment platform for international and Indian investors with a mandate to invest equity capital in domestic infrastructure.

As well as the Government of India, CPPIB joins Abu Dhabi Investment Authority, AustralianSuper, Ontario Teachers' Pension Plan, Temasek, Axis Bank, HDFC Group, ICICI Bank and Kotak Mahindra Life Insurance as investors in the NIIF Master Fund.

LARGE SIDECAR OPTION

With CPPIB's investment, the NIIF Master Fund now has $2.1 billion in commitments and has achieved its initially targeted fund size. In addition, NIIF Master Fund investors have co-investment rights of $3 billion, which will enable the NIIF Master Fund to invest at the scale required for India's large infrastructure requirements.

Both the CPPIB co-investment rights of up to $450 million and the fund’s general sidecar capital relatively dwarfs the fund’s capital size. The current asset monetisation and build-out plans of the Government of India are sizeable and are expected to require deployment of capital which may be beyond the fund’s capacity to invest, Lawrence explained.

“Given NIIF’s approach of creating focused sector platforms for key infra sectors, we expect these platforms to continue to require growth capital as India builds out its significant infra needs. The sidecar construct addresses both these opportunities,” he added.

While the sidecar route does limit the extent of CPPIB’s participation to a pro-rata share of the co-invest pool, compared to the amount that could be potentially deployed otherwise through a direct investment, Lawrence believes that this is outweighed by the prospect of investing alongside large aligned partners, and benefitting from focused asset management through the sector platforms.

SHAREHOLDER CONTROL

CPP Investments will also become a shareholder in National Investment and Infrastructure Fund Limited, NIIF's investment management company. A shareholder stake was offered to all limited partners (LPs) in proportion to their contribution to NIIF, according to Lawrence.

“It is a fundamental part of the offering structure. We believe that this aligns the IM [investment manager] to the LPs and creates a robust foundation for the fund,” he said.

CPPIB believes that the ownership will offer further insight into sectors where the pension plan does not already have a direct investment presence. Lawrence declined to comment on performance ambitions from investments in and alongside NIIF, citing CPPIB’s policy of not disclosing target or expected returns by asset class.

According to University of Oxford-affiliated Our World in Data, India’s population is expected to reach an estimated 1.68 billion in the 2050s, by which time it will have surpassed China's.

As of end-2019, CPPIB had C$35.05 billion ($26.3 billion) invested in infrastructure projects globally, excluding C$9.09 billion in energy and resources as well as C$5.39 billion in power and renewables. Its total AUM stood at C$529.67 billion, with net assets at C$420.43 billion.

One of the pillars of CPPIB’s investment plan to 2025 includes shifting up to one-third of its total AUM into emerging markets such as China, India and Latin America, according to its annual report for the 2019 financial year, which ended on March 31.

Suyi Kim

During the year, the Private Equity Asia (PE Asia) portfolio grew from C$12.4 billion to C$13.6 billion in carrying value. The portfolio consists of C$8.2 billion (60.4%) in funds, C$5 billion (36.4%) in direct investments, and C$400 million (3.2%) in secondary investments. The majority of PE Asia’s investments were based in emerging markets, with 52% in Greater China and 13.5% in India.

In November 2019, Suyi Kim, senior managing director and head of Asia Pacific at CPPIB, declined to predict by how much CPPIB could increase its India asset allocation, explaining that the pension fund does not set specific targets per market and would not quantify a target AUM to reach in India in 2025.