Ontario Teachers’ Pension Plan, Canada’s third-biggest retirement scheme, is set for a major expansion drive in Asia.
It aims to add new offices and hire considerably more staff in the region over the next five years, with a focus on private markets and particularly real assets, a senior executive told AsianInvestor.
“We have about 25 people in the region now but we are looking to grow that substantially,” Jo Taylor, OTPP's executive managing director for global development, said last week.
Among the new office locations being looked at by the C$191 billion ($143 billion) fund is Australia, India and Singapore, he added. OTPP's only Asian presence at the moment is in Hong Kong, where it opened an office in 2013.
The planned headcount expansion will be largely driven by OTPP continuing its push into private markets, including building infrastructure, natural resources and property teams on the ground, Taylor said. The bulk of the Asia staff is currently focused on private equity investments.
And the fund’s allocation to Asian assets – around 10% of its portfolio – is likely to rise, he said, declining to comment on the potential size of any increase.
The buildout is likely to start with infrastructure and natural resources capabilities. OTPP already has assets in those sectors in Australia and New Zealand, but such investments are generally led by the team in Toronto.
The fund’s real estate arm, Cadillac Fairview, has a franchise in Canada and Latin America and is set to expand into Asia over time, Taylor said, declining to put a time frame on when that might happen. OTPP does not yet have any property assets or professionals in the region.
The fund's ambition to invest in more private markets in Asia is not surprising, as illiquid assets largely drove returns last year.
On April 3 OTPP announced a net return of 2.5% for 2018, with five- and 10-year net performance of 8% and 10.1%, respectively, as of December 31. Private equity contributed the biggest returns (19.5%), with natural resources (7.7%) and other real assets (7%) also generating decent performance.
“In 2018, our private assets carried the day,” said Ziad Hindo, chief investment officer of OTPP, in a statement accompanying the results announcement.
Asked how OTPP's split among asset classes was likely to change in Asia, Taylor said he preferred not to speculate.
He was more open to discussing how and where the fund was looking to expand. “Asia is a very important region to us and we are spending a lot of time looking at how we scale our capabilities in that region.”
OTPP is following the overseas expansion model there that has proved successful for it elsewhere, including Europe, Taylor said, which is to build local teams and work with local partners on direct and co-investments.
Hence the need to establish more branches in the region.
“If we’re going to do more in India – as is our plan – we would have to consider opening an office there," he added. "The same goes for elsewhere in the south of Asia. There’s an argument to look at setting up in Australia or Singapore.”
Hong Kong works well as a base for covering the North Asian markets of China, Japan, Korea and Taiwan, Taylor noted. Japan is looking increasingly interesting as an investment destination, he said, but it can take a long time to build the trust of local businesses and entrepreneurs there.
OTPP's Asian ambitions reflect a wider trend among Canadian pension funds to carefully increase their exposure to the region.
The Ontario Municipal Employees Retirement System opened an office in Singapore in April last year and this year underlined its commitment to Indian infrastructure. Montreal-based PSP Investments aims to open an office in Asia this year (and the Teacher Retirement System of Texas is likewise looking to set up in the region in 2019).
Lionel Johnson, president of the San Francisco-based Pacific Pension & Investment Institute, told AsianInvestor in September that he expected more Canadian pension plans to announce new offices in Asia in the following 12 to 18 months.