Canada's eighth-biggest retirement fund, the Healthcare of Ontario Pension Plan (Hoopp), is eyeing greater portfolio exposure to Asia, notably through private equity funds and co-investments and, eventually, real estate.

In the second of this two-part series, its chief investment officer Jeff Wendling tells AsianInvestor why the C$78 billion ($59 billion) fund is keen to employ homegrown Asian general partners.

“In Asia, we’re not looking to use the big US private equity firms,” Wendling said. “That’s maybe a point of difference between us and some of our peers. We’re looking to support independent local fund managers."

For Hoop, management teams running funds in their own markets tend to be stronger and more stable. “The risk of losing an Asia-based investment team is lower when it’s an Asian-headquartered fund,” Wendling reasoned.

Another consideration for Hoopp is size, since the biggest funds may be under more pressure to deploy capital, so may be more inclined to overspend on deals, he said. In the current climate, with valuations of illiquid assets at worryingly high levels, that's particularly important.

“We look at all sizes of funds, but have a focus on medium-sized managers – that’s our global strategy," Wendling said. "That applies to Asia as well.”

RISING ASIA EXPOSURE

Hoopp currently invests in Asian private equity exclusively through funds, but is likely to start doing co-investments.

“We’re now open to that,” Wendling said. “But direct investments in Asia are some way off. That’s been our model globally – the further we go from Canada, the more we initially use funds to invest. Most of our direct investments are in Canada and the US.”

Globally, Hoopp’s private equity exposure is 55% in funds, 30% direct and 15% in co-investments.

It started investing in Asia through one private equity fund in 2013 and now does so via nine funds across seven managers, Wendling said. Most of these funds involve pan-Asia strategies, although the pension plan allocates to country funds for larger markets such as China, Japan and Korea.

Some of Hoopp’s private equity general partners were formerly part of the Asian businesses of big Western alternative investment firms that have struck out on their own.

In the past decade the fund has nearly tripled its global private equity allocation (which includes private debt) to 11% from 4%, with Asia accounting for about a tenth of that. Likewise, its property allocation has grown at a similar pace over the same period to stand now at around 18%. 

These increases have come as Hoopp has reduced its public equity market exposure over the past five years or so.

The fund does not hold any infrastructure assets globally, but it does expect to start allocating to property in Asia at some point down the line. 

CROWDING CONCERNS

Wendling expressed some concern that private markets globally have become more crowded these days. “Generally we have some concerns about valuations – especially in private equity but also in real estate – over the scale of fundraising and the dry powder that needs to be put to work,” he said.

For the time being Hoopp is not looking to make many more big commitments to private equity or real estate managers with which it does not already have a relationship. 

“There may be better entry points in future, although in private equity capital is deployed over several years after making a commitment, so it is difficult to time the market as you can with public equities,” Wendling said. 

On the private debt side, Hoopp started making investments – outside Asia – about five years ago, and the asset class now accounts for 1% to 2% of its total assets under management.

But this too is a very popular space now, said Wendling. The pension plan's private debt allocation will probably rise, “but we’re concerned that a lot of money is being raised for that asset class”.