Ontario Municipal Employees Retirement System (Omers), one of Canada’s big pension managers, underlined its desire to build exposure to Asia by taking a one-fifth stake in one of the country’s relatively new infrastructure investment trusts (Invits).

The public fund, which had C$95 billion ($72 billion) under management as of end-2017, has bought a 22.4% interest in IndInfravit Trust for Rs8.7 billion ($122 million). In doing so it has joined the likes of Canada Pension Plan Investment Board (CPPIB), Germany’s Allianz Capital Partners and other institutional investors as a unitholder in the trust.

“IndInfravit is a well-managed, world-class core infrastructure asset,” said Bruce Crane, head of Asia infrastructure at Omers, in a statement on Friday (February 22). “This investment provides an attractive entry point into India, one of the most dynamic markets globally, alongside well-trusted partners.”

Bruce Crane

Invits are structured as listed securities that pool money from investors to buy cashflow-providing assets. There are seven registered trusts listed by the Securities and Exchange Board of India on its website. The first two launched in 2017, and IndInfravit was the third to arrive, listing in May last year.

IndInfravit holds a portfolio of five operational toll road concessions that were initially built and operated by domestic firm L&T Infrastructure Development Projects Ltd (L&T IDPL), a subsidiary of construction major Larsen and Toubro.

CPPIB has invested $200 million for 30% of IndInfravit units, ACP has acquired 25% for $166 million and L&T IDPL has 15% of the units, with the rest held by other local and international institutional investors, according to a media report. AsianInvestor could not immediately confirm these figures. 

 

Invits are seen are reliable income stream generators, being required to invest at least 80% of their capital into established revenue-generating assets. That means that there is little project execution risk.

ASIA RAMP-UP

Omers’ stake acquisition in IndInfravit Trust comes after it opened an office in Singapore last year with a view to make direct investments and cultivate new investment partners in the region.

It is part of the pension plan’s strategy to further diversify its global portfolio including into emerging markets, with Asia a major focus. Between the end of 2016 and the end of 2017 (the latest available figures), its allocation to Canadian assets fell to 36% from 40% while its allocation to rest of the world (including Asia) rose by half to 9% from 6% (see graph below).

Other large Canadian pension funds – including CPPIB, La Caisse de Depot et Placement Du Quebec (CDPQ), Healthcare of Ontario Pension Plan – are targeting bigger allocations to India and the wider Asia region. And Montreal-based PSP Investments, with C$153 billion in AUM as of March 31 last year, plans to open an office in Hong Kong in 2019. Some of these funds have told AsianInvestor they are making such moves cautiously in light of market turbulence and geopolitical uncertainty. 

Omers, which handles the retirement benefits of all local government employees in the province of Ontario, declined to say how much it has allocated to infrastructure in Asia or the extent to which it expects to grow its exposure to the region. But the trend is clearly towards a rising allocation to emerging markets such as those in Asia. The Singapore branch is Omers’ second in the region after Sydney.

INDIA FOCUS

An Omers spokesman told AsianInvestor the fund was focusing its Asia infrastructure investment plans on high-growth areas such as India. He added the pension plan has a three-strong infrastructure team in Singapore, led by Crane, and it will expand this headcount as required over time.

Both CDPQ and CPPIB have also described India as being a key focus when it comes to infrastructure investment. Indeed, the country is one of the five “priority” emerging markets for CDPQ, which has an office in Mumbai, where its executive vice president of growth markets, Anita George, is based.

In September last year, George told AsianInvestor CDPQ had $4.5 billion invested into India across listed equities and bonds, private equity, infrastructure and property. It has also shared its experiences with Indian pension funds gained from infrastructure partnerships elsewhere. 

Western asset owners tend to view India as a more appealing destination for infrastructure investment than other large emerging economies such as China. Partly this is because Beijing has historically overspent on infrastructure to spur the economy. The country’s projects also lack a regulatory framework that investors are familiar with.

India also has a voracious need for more infrastructure investment, which helps explain why it is a priority market for the China-backed Asian Infrastructure Investment Bank (AIIB). The multilateral development institution has invested $2.2 billion into India since its establishment in 2016, nearly a third of the $7.5 billion it has allocated to date.

India needs about $4.5 trillion of investment over the next 25 years into its roads, airports, ports, rail and power networks and other infrastructure, according to the government’s 2017-2018 Economy Survey, released in January last year.

Indira Vergis contributed to this story.

See the cover story of the October/November 2018 issue of AsianInvestor magazine, focusing on how Canadian pension funds are ramping up their focus on investments in Asia.