Canada’s second largest pension fund has moved to accelerate its Asia investment strategy by naming ex-Goldman Sachs executive Mark Machin in a newly created role as regional president.
Machin will take up his post with the Canada Pension Plan Investment Board (CPPIB) on March 19 in Hong Kong with a remit to build out a unit with 20 investment professionals. It has had an office in the city for four years, and is eager to expand the scope and scale of its investments.
In the past few months CPPIB has added its first public market investment professionals in Hong Kong to analyse regional markets and external managers. It is also starting to consider private debt opportunities in the region, too.
It comes as the C$153 billion fund strives to double in size within the next decade, and above all increase its $3.5 billion China portfolio.
The CPPIB had $13.1 billion in public equity, real estate and private investments in Asia-Pacific as at December 31 – meaning the region represents 8.5% of global AUM.
In media interviews to announce Machin’s hire, the pension fund’s executive vice-president, Mark Wiseman, admitted that the firm was behind where it wanted to be in Asia, with its level of investment “arguably underweight” relative to the size of the region’s economies.
“In his nearly 20 years in Asia, [Machin] has developed extensive leadership and investment skills as well as strong relationships within the Asian investment and corporate communities,” says Wiseman.
Machin spent two decades at Goldman in a number of positions in London, Hong Kong and Beijing and his exit was reported last December. Most recently he led the firm’s investment banking business in Asia as vice-chairman for Asia ex-Japan. He moved from Hong Kong to Beijing in 2009 to oversee expansion of Goldman’s advisory business in China.
Goldman Sachs Private Equity Group looks after two of CPPIB’s regional investments; the pension fund has committed $500 million to secondary investments in Goldman’s Vintage Funds range.
Wiseman notes that CPPIB’s team will expand under Machin as it seeks to boost its regional investments, especially in China, where its focus is on retail property and private equity.
In Asia-Pacific the CPPIB has $6.9 billion in public markets, $3.4 billion in real estate and $2.7 billion in private investments.
Globally equities account for $77.5 billion (50.7%) of its overall portfolio, followed by $48.4 billion (31.6%) in fixed income and $26.9 billion (17.7%) in inflation-sensitive assets, including real estate, infrastructure and inflation-linked bonds.
The Canadian pension fund’s regional partners include Temasek-backed PE firm FountainVest Partners, which launched a China growth fund in 2008; and Hony Capital, a domestic PE firm focused on state-owned enterprise buyouts and growth capital investments in China.
It also lists Penta Investment Advisers as a partner, a pan-Asia, valuation-focused investment firm with research staff in Korea and China.
Among its secondary market investments, CPPIB has committed $100 million to the Baring Asia Private Equity Fund; $150 million to the CDH China Fund IV; $50 million to Citic China Capital Partners; and $200 million to MBK Partners Fund II.
CPPIB's real estate partners include CapitaLand, with $180 million committed to CapitaLand-sponsored Raffles City China Fund; and Colonial First State GAM, with A$375 million invested into its Property Retail Partnership and A$455 million into the acquisition of Northland Shopping Centre, which Colonial First State manages.
Separately, CPPIB also announced that it had retained Vikram Gandhi and his firm VSG Capital Advisors as senior advisers, effective March 1. Based in India and Hong Kong, VSG will provide strategic advice and facilitate investment opportunities for CPPIB in the Indian sub-continent.
The Canada Pension Plan was established in 1996 as a joint creation with the federal government and the nine provinces that participate. Headquartered in Toronto, it has 18 million Canadian contributors and beneficiaries.
A recent survey by Greenwich Associates found that despite an 18% recovery in Canadian pension funds’ AUM since 2009, funding levels remain far below their high of 100% in 2006, standing at 91% in 2011.
Only 55% of large Canadian companies and 17% of public and provincial plan sponsors operate defined contribution (DC) plans. Meanwhile about 70% of defined benefit (DB) plans remain open to new employees in Canada, compared to the US where half of DB plans have been closed to new employees.
Only 5% of Canadian corporate plan sponsors plan to add a DC plan, the survey found.