CPPIB sees Covid-19 bolstering Asia tech-linked assets
The Canada Pension Plan Investment Board, or CPP Investments, expects the coronavirus pandemic will accelerate technology-led transformations of various industries, and it intends to take advantage of these over the medium and long term.
Suyi Kim, senior managing director head of Asia Pacific at CPP Investments, said her organisation’s immediate focus is to ensure its regional investments are both liquid and sound. But further down the road, it is keeping an eye out for new investment possibilities as the coronavirus pandemic increases the usage of online services such as ecommerce, she told AsianInvestor.
“My view is that Covid-19 is going to accelerate some of the transformational changes that we have seen in Asia in particular. We see long-term opportunities in all technology-related areas. That is of course not just one industry; technology touches everything, including real assets,” Kim said.
“For the security selection, it’s not like our senior management team goes and tells our team to buy companies that are more technologically enabled. Our direction to our investment teams is that we are interested in investing in opportunities with this minimum return by asset class. Naturally with the fast growth in the technology sector, we’ve seen more opportunities in the sector that meet our underwriting requirement.”
CPP Investments is particularly focused on Asia’s emerging markets, and especially China and India. The scale of the world’s two most populous countries largely explain this push, said Kim, referring to the investment division’s plan towards 2025.
The plan includes shifting up to one-third of CPP Investments’ 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, 2019.
CPP Investments had net assets of C$420.4 billion ($295.42 billion) at the end of last year. Of this, C$103.2 billion (24.6%) was invested in Asia while C$13.5 billion (3.2%) was in Australia.
Its Asia Pacific investments are spread across real estate, infrastructure, public and private equities, funds, co-investments and credit. However, the pension fund investment arm has been targeting businesses that harness technology across these asset classes.
“In Asia, proportionately we already had more investments in that area [technologically enabled businesses]. That area has shown high growth and been a bigger part of the opportunities in the Asia market, so our team has rightly been focusing on that,” Kim said.
SUPPORT EXISTING BUSINESS
Kim emphasised that the fund’s paramount priority is the safety and wellness of its staff, while its top investment focus is to maintain its conservative liquidity levels to keep the companies it invests in safe and sound.
CPP Investments declined to reveal its current liquidity levels, noting that it will next announce its fiscal year results in late May.
The investment division’s second-most important investment goal is to support its portfolio companies and help them prepare for the possibility the coronavirus pandemic lasts for a prolonged period.
By way of example, Kim pointed to several toll road businesses that CPP Investments has invested into as a part of its infrastructure portfolio. Over 20 such roads in India have not been collecting tolls because nobody is travelling, and toll road investments in Indonesia and Australia have also seen their income reduced.
“That makes it necessary to look at the cashflow situation for these toll road companies if this situation lasts for three months, six months or even nine months … we have to look at all of these scenarios, and we need to continue to fit them to the situation and prepare and plan for that,” Kim said.
As part of this process she noted that CPP Investments has "set aside capital to potentially deploy as a matter of asset management across existing portfolio companies as appropriate", but declined to offer more specifics.
We are carefully looking to potential opportunities arising, but we don’t want to rush into that ... we think that there could be better opportunities later on
In addition to this work CPP Investments is monitoring the public and private markets, to see whether the unsettled conditions throw up new investment opportunities. But it’s not in a rush, Kim emphasised.
“We are carefully looking to potential opportunities arising, but we don’t want to rush into that. In fact, we think that there could be better opportunities later on,” said Kim.
What opportunities could those be? Kim declined to specify. “Given this pandemic that we are still in the middle of, it is difficult to forecast this [the impact on earnings and cashflow growth] and apply the appropriate discount,” she said.
However, Kim believes that CPP Investments' long-term investment horizon could well work to its advantage. "We don’t have targets and timeframes to deploy capital. We can take our time to find the right opportunities at the opportune time rather than jumping into markets.”
OVERSIGHT RESTRICTIONS
Of course, the need of many countries to effectively shut down social contact to limit the spread of the coronavirus has hit CPP Investments as well as its portfolio companies. That’s limited its ability to directly oversee the operations of its investments.
“Particularly on the private investments side we cannot travel and go see, for instance, warehouses or buildings that we will not buy unless we do the due diligence on such assets,” said Kim. “Those things are on pause.”
This particularly impacts private investments, but also takes a toll on public assets. Kim noted that while listed companies are typically more transparent, due to the need to offer public information, CPP Investments often supplements this through other means, such as meetings with the senior management. That has also had to come to a temporary halt.
Still, the Canadian pension investment unit can at least rely on its longstanding track record and physical presence.
“We have more than 60 partners on the ground in Asia that we have been working with for more than a decade. We have good sets of portfolios on the ground that we know well. That helps us to conduct businesses in a limited sense, [if] not fully,” said Kim.