Top Canadian pension fund The Ontario Municipal Employees Retirement System (Omers) is expecting to add up to C$12 billion ($9.5 billion) in additional investments in Asia by 2025, and intends to supplement its regional investment team by five more people to facilitate the growth.
Omers currently has 10% of its total C$105 billion assets under management (AUM), or C$10.5 billion, allocated to Asia, with C$3.6 billion invested in equities and fixed income, and the remainder spread across infrastructure, private equity, and real estate.
Ashish Goyal, head of Omers Capital Markets Asia in Singapore, told AsianInvestor that he expected the Asia allocation to increase to 15% by 2025. “That is the strategic intent. If [we identify] more opportunities, we will get there faster. If there are fewer, we will get there slower,” he explained.
“Compared to our peers, we are [relatively new] to Asia. The fund is growing: we are allocating more of the incremental growth to Asia,” he added.
By 2025, a combination of investment gains and contributions will see Omers’s total AUM increase to between C$130 billion and C$150 billion, so a 15% allocation at that point would be worth between C$19.5 billion and C$22.5 billion. By 2030, its total AUM will have risen further, to between C$170 billion and C$200 billion, Goyal estimated.
Roughly two thirds of the fund's new Asia allocations to capital markets will be channelled to fixed income, and one third to equities, he said.
Goyal noted that the fund was following a “crawl-walk-run” approach and was planning to hire five more to the 12-person capital markets team based in Singapore over the next few years – with two in equities, two in credit, and one in partnerships.
The fund targets 4% to 5% in public credit before leverage, and 5% to 12% in private credit. Equity return targets are in the high single digits.
PUBLIC VS PRIVATE
Omers Capital Markets will retain a 50-50 split between public and private credit in Asia.
Its public credit allocations are mainly BB-rated high-quality, high-yield names. In keeping with its high concentration of investments in China, the fund plans an allocation of up to 50% to China and the rest to India, Australia, and other Asian markets by 2025.
“Investment grade in Asia is not of interest to us, mainly because we can access a deep and liquid investment grade market in the US and North America,” Goyal said.
Omers Capital Markets’ large Asia private credit exposure is allocated partly via Orion Capital Asia, a mid-market lending firm backed by Omers as a 50% shareholder. Omers Capital Markets has already deployed C$150 million through Orion on a separately managed account.
“This is a very close partnership [through] which we are deploying [the funds]. There is a lot more to come, with good strong [pipeline] ahead,” Goyal said.
The largest private credit allocation is to India, followed by China, although the firm declined to give allocation sizes.
Eighty percent of the Indian credit allocation is in local currency. “We expect the [Indian] rupee to depreciate in line with its long-term trend,” he said.
Meanwhile, all of China’s allocation is in offshore hard currency credit, as a result of capital controls and concerns about the legal rights of creditors. “There will be a time when this will change. This is a huge market. We won’t be frontrunners but fast followers. Inevitably there will be some creditor defaults, and precedents for creditor rights and claim processes will be established,” said Goyal.
The fund is also looking at a transaction in Australia, where it likes the correlation with the Canadian dollar, but declined to give details. It takes a centrally managed currency hedging approach.
The majority of Omers Capital Markets’ Asia allocation is invested in-house. Over the next five years, Goyal predicted a small increase in the use of external managers or partners, noting the fund was looking to hire a specialist in this area. “In the medium term, there will not be more than 10% to 15% deployed through partners,” he said.
Goyal said Omers Capital Markets’ long-term investment horizon allows it to negotiate hard on fees, require higher hurdle rates, and generally reject Catch-Up structures.
Omers Capital Markets currently has a small equity allocation through one manager that it declined to name.
The fund concentrates its equity allocation, which currently comprises 34 holdings, in a universe of 400 highly liquid stocks in Asia’s largest markets. India is its largest allocation, followed by China, then Australia, but the fund also allocates to Korea, Taiwan, and Indonesia. “We have two criteria: liquidity and quality,” said Goyal.
Omers Capital Markets Asia invests in pre-IPO late-stage funding, and has struck three deals that occurred between two to 18 months before IPO. Goyal said the fund was comfortable in this niche sector, which required a lot of due diligence and legal skills.
Goyal said Omers was keen to communicate to firms in Asia that it was comfortable investing across the capital structure. “It could be a family-owned business, a professionally run company, or a PE company that needs capital for its companies,” he said.
He pointed to its investment in Hong Kong-listed ESR Cayman, a logistics real estate platform, as an example. Omers is currently its largest shareholder, with a 14.91% stake worth nearly C$1.5 billion.