Canada Pension Plan Investment Board (CPPIB) is doubling down on India, driven by its belief in the long-term consumer potential of the country's growing middle-class.

Seeking to tap into the future shopping needs of India's rapidly urbanising and suburbanising population, which is on course to become the world’s largest, its growing strategic bet is on offline retail and involves both real estate and equity.

Suyi Kim

“The organised retail sector and ecommerce in India show significant potential for growth over the longer term,” Suyi Kim, head of Asia Pacific at CPPIB, told AsianInvestor.

“We continue to look at opportunities across the broad definition of ecommerce-related sectors, as well as more traditional real estate investments in high-quality retail and mixed-use developments,” she said.

Its latest investment in this regard is focused on the essential distribution networks that underpin ecommerce.

Announced on September 9, CPPIB invested $115 million into Delhivery, a third-party logistics provider. The firm operates in more than 2,000 Indian cities, offering a full range of supply chain services.

The investment was made through CPPIB’s Fundamental Equities Asia (FEA) Group, which performs fundamental research and invests long-term in companies throughout Asia.

“The continued strong growth of ecommerce has generated significant opportunities in India’s express logistics space for long-term investors such as CPPIB and we are pleased to partner with a market leader,” Deborah Orida, the pension fund's FEA's global head of active equities, said. “This investment in Delhivery builds on our ... strategy to provide strategic capital to high-quality companies in the region.”

Following the investment, CPPIB will have one seat on Delhivery’s board.

As of June 30, CPPIB’s equity investments in India totalled C$9.9 billion ($7.52 billion) across all asset classes. This represents around 2.5% of its total assets.

CPPIB’s annual rate of net nominal return was 8.9% in its last fiscal year ending March 31. As of June 30, its 10-year and five-year annual returns were 10.5% each.

MULTIPLE POINTS OF ENTRY

The surge of ecommerce in India has also led to a long-term bet into modern logistics assets. In May 2017, CPPIB formed a joint venture with local logistics specialist IndoSpace in 2017, known as IndoSpace Core, to focus on acquiring and developing modern logistics facilities in India.

CPPIB’s investments are carried out by different entities within the asset owner’s organisation, Kim said. With 26 different investment departments globally CPPIB do not run its portfolio on an integrated basis.

For instance, the investment into IndoSpace is a joint venture within CPPIB’s real estate team. It is run on a day-to-day basis by IndoSpace, supported by the asset owner’s own real estate team on the ground in Mumbai. Meanwhile, the Dehlivery investment is a minority stake run by its Asian equities team in Hong Kong.

“While we don't track and value synergies between the various investments, unless those are combined, we do recognise the broad exposure to the sectors,” Kim said.

With its Asia-Pacific headquarters in Hong Kong, Toronto-based CPPIB also has offices in Mumbai and Sydney.

CPPIB initially committed approximately $500 million to the IndoSpace joint venture for a significant majority stake. IndoSpace Core has committed to acquire 13 industrial and logistics parks totalling approximately 14 million square feet, from current IndoSpace development funds. The partnership has since developed further with the entry of global logistics real estate specialist GLP in September 2018.

CPPIB has also invested in Indian roads to facilitate the transport of ecommerce, as well as other infrastructure investments in the country. In this respect, they have been joined by other Canadian pension capital from the likes of Ontario Municipal Employees Retirement System and Caisse de dépôt et placement du Québec.

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.