Opinion: Canadian pensions won't rush out of India despite political strains
The ongoing diplomatic tensions between India and Canada, triggered by the killing of Sikh separatist Hardeep Singh Nijjar on Canadian soil in June, might seem enough to give pause to many pension investors looking to capitalise on the multiple opportunities in the South Asian giant.
However, it's likely that Canada's public pension funds will remain steadfast in their investment commitments to India.
These sophisticated international investors have deeply embedded themselves in India's private markets and across various sectors such as road and renewable energy infrastructure, office real estate, and venture capital.
MOMENTUM AND STRATEGY
The investment momentum of the Maple 8 -- an informal term for the top eight pension plans in Canada -- in the region is unlikely to be stalled or reversed in the face of what could eventually turn out to be a fleeting diplomatic crisis.
Also read: Market Views: Will India overtake China in investment opportunities?
India, with its amibitious goal to establish 450GW of renewable energy capacity by 2030 and its $445 billion investment target for its road sector under the National Infrastructure Pipeline (NIP), provides a tantalising prospect for foreign investors and has so far attracted a lot of interest from Canadian pension funds.
The relationship goes both ways, as India also heavily leans on the patient capital of global pension funds to propel its growth machine, and Canadian funds, in particular, have been pivotal in backing the Indian government's infrastructure endeavours and the evolution of significant startups.
CPP Investments, the largest investor among Canada's state-owned investors, has been crucial in this context.
With an investment of US$13.5 billion in private equity and real assets over the last decade, CPP Investments contends that India is integral to its international, long-term investment strategy. The fund's most recent annual report even indicated that 4% of its $427 billion portfolio is in Indian rupees.
Also read: CDPQ sharpens focus on Indian renewables, infrastructure
More recently, statements from the Alberta Investment Management Corporation (AIMCo) and the Ontario Municipal Employees Retirement System (OMERS) have been incredibly positive on India.
Following the opening of their Singapore office on September 12, AIMCo’s chief investment officer Marlene Puffer said that “India has captured our interest and been a focus for quite some time, particularly in terms of infrastructure investments.”
OMERS' head of Asia Ashish Goyal also recently said that the fund is "very excited about the long-term potential for India."
Also read: Global pension funds increase their bets on India
While India is widely recognised as an attractive destination for investment—particularly as more companies look to diversify their production and supply chains away from China—Goyal went as far as to say that investors might be “underestimating the potential” for the country’s significant economic growth to continue over multiple decades.
FUTURE OUTLOOK
Although these statements were made prior to diplomatic tensions escalating significantly, the recently articulated bullish perspective from these entities appears to reject the notion that they would alter their plans for further exposure in India.
More importantly, Canadian funds are also known for maintaining a political arm's length from the Canadian government to reduce the impact of diplomatic ties on investment decisions.
The stakes are just too high, the rewards are potentially too great and these entities are too experienced in this region to back down even as diplomacy continues to erode.
The only caveat: if diplomatic relations take a turn for the worse, the funds could opt to pause on further investments while they monitor the situation. Even so, the pause will likely be temporary.