Ontario Teachers’ Pension Plan has roughly 10% of its C$192 billion ($144.3 billion) invested in Asia, mostly in equities – with around half in public markets and managed directly by its central office and the rest in private markets and managed locally with some external help.

AsianInvestor spoke to OTPP's Asia head, Ben Chan, and its executive managing director of global development, Jo Taylor, about how Canada’s third-biggest public retirement fund operates in Asia.

The institution, which aims to substantially build out its presence in Asia both with new offices and staff and has around one-third of its assets in equities globally (see table below), works with a relatively small number of private equity firms in the region, Taylor said.

They include a good number of local, homegrown alternatives managers – such as Seoul-headquartered MBK Partners and Hong Kong-based firms FountainVest and PAG – as well as big global firms with a strong presence in Asia, such as TPG.

“We work those relationships reasonably hard to get close working partnerships with each of them,” Taylor said. “We want to feel we are a preferred partner.”

Ben Chan, OTPP

Chan outlined OTPP’s approach in more detail.

The fund doesn't spread its investment mandates too wide and focuses instead on building strong partnerships in China, India, Australia, Vietnam, Indonesia and the Philippines, he added.

“Our plan is to build a very high-quality book in Asia using a twofold strategy: we want to support strong local managers and to co-invest with them, and also to invest strategically in listed or soon-to-be-listed companies.”

“We may have two or so strategic investment partners per market – so some 12 partners for our six countries,” Chan said. “Asset managers are an obvious first port of call but there’s nothing to stop us working with non-asset managers.”

Similarly, the Healthcare of Ontario Pension Plan (Hoopp) is also keen to employ homegrown Asian general partners because it sees them as having particularly stable management teams. Plus the C$78 billion ($59 billion) fund prefers to focus on medium-sized rather than big managers, Hoopp chief investment officer Jeff Wendling told AsianInvestor in an interview late last year

PORTFOLIO COMPANY FOCUS

Asked whether the current uncertain and volatile environment has raised concerns or led to any changes in how OTPP uses its managers, Chan said not in regard to its relationships – only perhaps with regard to the potential impact on its underlying portfolio companies’ business.

“Our key concern in Asia is to create strong, long-term relationships with funds and corporate partners and to build attractive investment portfolios.

“We keep an eye on macroeconomic factors, of course, but from the perspective of how they are impacting the businesses we invest in. For example, should we, in the face of market shifts, reposition the business? Do we diversify our production base?”

ONTARIO TEACHERS' ASSET ALLOCATION AND RETURNS
(Click for full view)

In this respect, OTPP looks to exercise its rights as a partner and shareholder and to interact with the board and the management of the corporates it invests in.

“That is how we differentiate ourselves from our peers,” Chan added. “We do not react on a knee-jerk basis to short-term issues.”

The fund is agnostic about whether it invests in private or public companies, he said. “What is key is that we are able to help shape the direction of the company. Market volatility as a result of short-term factors opens the door to meaningful conversations, and when that is the case we need to be there and we want to be there.”

CO-INVESTMENT PLANS

OTPP has conducted a number of co-investments with its general partners and aims to do more, Chan said.

Meanwhile, the Investment Management Corporation of Ontario, another manager of public assets, is looking to establish its first partnerships with alternatives managers in Asia, its CIO Jean Michel told AsianInvestor early this year. 

As for asset classes beyond private equity, OTPP has some infrastructure exposure in Asia but no real estate as yet – and it has no local investment professionals in either of those areas.

But that is set to change, Taylor said, with the fund set to build real asset capabilities in the region, most likely starting with infrastructure.

Private markets will remain the key focus of this buildout; perhaps not surprisingly given that such investments drove the fund’s returns last year (see table above).

Public market assets make up the other half of OTPP’s Asian exposure but they are managed out of Toronto, where the fund has a centralised trading operation. That set-up is unlikely to change, Taylor said.

This article has been updated to include information about other Canadian pension plans' approach to using external managers in Asia.