As big Asian state institutional investors expand their presence internationally, their peers worldwide are making similar moves into the region.
Ontario Teachers’ Pension Plan (OTPP) has been granted type 1, 4 and 9 licences in Hong Kong, allowing it to deal in securities, advise on securities and manage assets. This follows reports in November that the C$129.5 billion ($129.5 billion) retirement fund was planning to set up a presence in the city.
It has leased space in Alexandra House in the central business district and will put five to seven equities staff there, with two transferring from Toronto and the rest being hired locally. They will form part of the public equities and private capital teams and will perform research and deal-making.
Raju Ruparelia, portfolio manager for private capital, and Fady Abdel-Nour, senior investment analyst for public equities, had been covering emerging markets out of Toronto, but will now be dedicated to the region. Ruparelia is already in Hong Kong, while Abdel-Nour will arrive in the next few weeks.
OTPP plans to boost its Asian exposure to further diversify its portfolio and boost returns on the back of growth in the region. Increased yields are imperative, since the retirement fund is paying out more than it’s taking in, with around C$2.9 billion of payments coming in and C$4.9 billion in outflows.
The total it has currently invested in Asia-Pacific is over $10 billion. Its investments into the region started in 1991 and have been increasing in recent years, a trend that will continue.
OTPP chose Hong Kong over Singapore since it already has advisers in Hong Kong and the market is a more important hub for equities, says Deborah Allan, Toronto-based director of communications and media relations. It has also had an office in London since 2007 to invest in private capital in Europe, the Middle East and Africa.
OTPP's private capital team invests in funds, co-investments and direct investments. The public equities relationship investments may also include private deals – such as pre-IPO investments – and are always direct. There is not currently an official Hong Kong head as such; all the staff report into the heads of their respective teams in Canada.
OTPP also allocates to fixed income, but will research the market first before deciding if it will locate specialists in this asset class in Asia. Staff covering other asset classes will be appointed as the business demands and opportunities arise, Allan told AsianInvestor during a trip to Hong Kong last week. These might include equity or bond traders in the future, for example, as all dealing is currently done in Toronto.
The fund has stakes in a diverse range of companies and projects, including 360buy, a Beijing-based e-commerce company; Kyobo Life, of which it acquired 9.9% in June last year; Hong Kong jewellery chain Chow Tai Fook; Mumbai-based buyout company Kedaara Capital Advisors; and an Australian desalination plant in the state of New South Wales.
OTPP does not see itself as an activist investor per se due to the negative connotations, says Allan, although it does support good corporate governance. Whether it holds a position on a company’s board will depend on the size of its stake.
Broadly, the fund has 45% in public and private equity assets, and 55% in real assets, fixed income and commodities. This includes a total of $6 billion in hedge funds of all types, as of the end of 2012. It also allocates to infrastructure and real estate, but it does not yet have any property assets in Asia-Pacific.
OTPP does not invest in frontier markets; it prefers places where there is a certain level of liquidity and information available. For example, for infrastructure assets, says Allan, “we look for a strong regulatory regime; these investments are stable and long-term – we want them for their bond-like attributes”.
Asked how much OTPP uses external managers, she says: “We don't just hand money over – we always remain quite involved [in the investments and allocating].” The fund doesn’t even hand out segregated mandates; it always takes a partnership approach.
It returned 13% ($14 billion) last year compared to a consolidated benchmark of 11%. Since inception in 1990, active management has accounted for 34% of total income and, with compounding, has added $60.5 billion to its AUM above benchmark returns.