The Ontario Teachers’ Pension Plan (Ontario Teachers’) wants to grow its infrastructure investments in India significantly and will explore similar opportunities in Southeast Asia using its Singapore office as the base to expand into the region.
The Ontario Teachers’, which manages around $188.3 billion in assets for its pension fund members, opened its Singapore office - its second Asian location after Hong Kong - in 2020 to enable its infrastructure and real estate, and equities teams to more effectively cover the key markets in India, Southeast Asia, Australia and New Zealand.
Prior to the opening of the Singapore office, infrastructure investment in Asia had been led out of its Toronto headquarters, its managing director of infrastructure and natural resources in Asia Pacific Bruce Crane told AsianInvestor.
“We had more of a fly in and fly out approach, so the idea was that if we're going to put more dollars into the region, let's make sure we do it with a team on the ground,” he said.
India will continue to be Ontario Teachers’ main focus for infrastructure investing in Asia. On April 20, the Canadian pension fund announced that it has committed to invest up to $175 million in KKR’s road platform in India, which includes Highway Concessions One.
This development marks Ontario Teachers’ third infrastructure investment in India, following its investment of a 25% stake in the National Highways Infra Trust late last year. The Canadian pension fund is also an anchor investor in India’s National Investment and Infrastructure Fund.
When looking at infrastructure investments in Asia, Crane says the fund has two key objectives — to increase the diversification of its portfolio and to achieve allocation for better growth. Among Asia's emerging markets, he is sure that India offers more opportunities to foreign investors.
“In Southeast Asia, our infrastructure team will generally only look at investment grade countries so, besides India, that’s really only going to include Singapore, Indonesia, Philippines, Thailand, and Malaysia,” he said. “From that group we aren’t going to call Singapore an emerging market.”
Among the group outlined by Crane, he said that next to India — Indonesia and the Philippines are probably the two most relevant markets, but neither has the depth of opportunities from a foreign capital perspective.
“The reason many investors like ourselves spend more time in India is because it has a much greater pipeline, and its needs and acceptance of foreign capital is much greater. They are simply better structured to allow investors like us the ability to come in and invest money in the ways that we need to,” he said.
“That doesn't mean that other markets in Southeast Asia don’t have those opportunities, but when considering the probability of success and where to allocate time and money — India takes priority over Southeast Asia.”
Ontario Teachers’ is not the only major asset owner committing capital to India’s fast-growing infrastructure. On April 11, the Canada Pension Plan Investment Board (CPP Investments) formed a $695.8 million joint venture with India’s Tata Realty and Infrastructure to invest in commercial properties across India.
CPP Investments - Canada's largest pension fund - which managed $437 billion of assets for 20 million members will invest $340 million into the joint venture, which will allocate up to $260 million for future acquisitions.
ROADBLOCKS TO EMERGING MARKETS
While India is providing fertile ground for foreign investment, Ontario Teachers’ Crane discussed some of the roadblocks that institutional investors still face when trying to enter many emerging markets.
“Things we look at include the strength of the local legal system, the strength of local regulatory frameworks, the potential risk of corruption in these processes, ” he said.
The Canadian fund also heavily scrutinises the quality of the companies with which they choose to partner in those markets. “We need to be sure we are dealing with global best in class partner standards,” he said.
“Of course, more often than not, we are also looking for the country’s receptivity to foreign capital and to understand their capital restrictions.”
Ontario Teachers’ currently has $28.5 billion in infrastructure and natural resource assets globally, with a target to increase allocation to these asset classes by $12.5 billion within five years.
In the Asia Pacific, the Canadian pension fund has invested around $770 million and $1.9 billion into natural resources and infrastructure, respectively.
“We don't have specific targets for any particular regions. The deals and the capital will flow to where the deals are the best from a risk and return perspective,” said Crane. “There was certainly a recognition, however, that we could do more in Asia, and that's not only in infrastructure but across all business units,” he said.
“That doesn't mean that there's more support for an Asia deal versus a non-Asia deal, but I'd say that there's just definitely a lot of support for allocating additional capital,” he said.