The opening of its second Asian office in Singapore in October 2020 has allowed the Ontario Teachers’ Pension Plan (OTPP) to cover key markets in Southeast Asia more effectively. The fund already had an Asian base in Hong Kong.
“We now have infrastructure, real estate and equities teams based in Singapore, and as a result we have been able to expand our operations quite meaningfully,” Ben Chan, senior managing director of Apac for OTPP, told AsianInvestor.
Since the Singapore office opened, the Canadian pension fund has increased its head count by over 50% and now has around 60 staff in Asia —approximately 40 in Hong Kong and 20 in Singapore.
The $193 billion pension fund has also expanded its direct investments, growing its assets within the region from around $12.8 billion to $16 billion after a busy 2021 for both the Singapore and Hong Kong teams.
At the end of last year, OTPP partnered with KKR and PSP Investments to acquire all the issued securities of Spark Infrastructure — which held a number of Australian utilities — in an all-cash transaction for approximately $3.9 billion.
“We also acquired a 33.4% interest in Greenstone, one of Australia and New Zealand’s leading insurance distributors, and in India we invested in the Infrastructure Investment Trust (InvIT) of the National Highways Authority of India (NHAI),” said Chan.
Historically, OTPP has always invested heavily in the spectrum of equities: private equity funds, direct investments and public equities.
“With the opening of Singapore, we have added infrastructure and real estate as well as a new asset class called the Teachers Innovation Platform. All together, we have four main asset classes present in Asia,” said Chan
The Teachers' Innovation Platform (TIP) focuses on late-stage venture and growth equity investments in cutting-edge technology companies that are innovating sustainably, explained Chan.
As investors around the world become more concerned about inflation, OTPP has also been increasing its exposure to real assets such as infrastructure and real estate, “which tend to be more resilient to inflation,” said Chan.
OTPP subsidiary Cadillac Fairview manages its real estate investments in the region.
“In real estate, Cadillac Fairview has partnered with Hines Group, investing $400 million in a fund that will be a multi sector open ended diversified vehicle looking at top tier markets in Japan, Australia, South Korea and Singapore,” said Chan.
Chan said the Canadian fund is concentrating its efforts on three strategic markets in Apac — India, China and Australia.
In Australia the fund tends to invest in infrastructure but is engaged in several real-estate private equity deals. In China, OTPP focuses more on equities and investments through TIP and in India it has so far invested in infrastructure and equities.
“Those are the three markets but in time we will expand our coverage of the developing markets in ASEAN.”
INFLATION AND VOLATILITY
OTPP’s general strategy is to leverage its flexible capital and active, engaged approach to deliver strong returns for its members. It tries to invest to have a positive impact on the world while maintaining its fiduciary duties to its members.
However, the fund must also contend with the same issues that face all institutional investors such as market volatility and the rising threat of inflation and interest rate hikes.
Chan explained that as a long-term investor, OTPP invests beyond short-term volatility and focuses on asset allocation.
“We are very dynamic in terms of how we allocate assets, even though we are a pension fund, which allows us to manage volatility through the cycles,” he said.
“For example, at the end of 2019 we had over 40% of our allocation in fixed income but by the end of 2020 we had less than 10% allocated to that asset class.”
Inflation does impact asset value as well as future liabilities in a broad sense, and could increase the cost of future pensions substantially, said Chan.
“In a macro sense, we look at inflation on a global basis rather than trying to manage it in a specific region,” he said. “On the micro level, we need to look at the impact of inflation on individual companies’ revenue and cost structure but that’s why we do tactical asset allocation.”