The Canada Pension Plan Investment Board (CPPIB), the North American country’s biggest public pension fund, expects emerging markets, led by China and India, to be the key driver of its global assets under management (AUM) over the next seven years.
CPPIB’s president and chief executive, Mark Machin, told Mint that emerging markets account for about 15% of its global assets in control, which touched C$368.3 billion on 30 September. In other words, assets in the emerging markets are worth roughly C$55.2 billion.
In previous disclosures, CPPIB had said its global AUM would hit C$476 billion by 2025, a third of that coming from emerging markets. This means that the Canadian fund expects emerging markets to account for roughly C$158.6 billion by 2025.
In effect, the expected C$108 billion increase in global AUM by 2025 would be 95% powered by the roughly C$103 billion ($77 billion currently) rise in the value of assets from emerging markets.
CPPIB did not immediately respond to an email requesting views on the big bet on emerging markets.
India within emerging markets
Machin, who took over as chief of the pension fund in June 2016, had previously served two decades at Goldman Sachs and much of that in Asia.
He said that China, India and Brazil are important emerging markets for the Canadian fund that invests across private equity (PE), private debt, infrastructure and real estate, besides public equity. It also comes in as a limited partner, or investor, in PE funds. In India, it has invested in funds of private equity firms True North and Multiples PE.
CPPIB has invested over $5 billion in India since it entered the country a decade ago and has just sealed a deal in the tech space as an investor in ed-tech startup Byju’s $540 million funding round that was led by Naspers.
According to Machin, although a few other countries within emerging markets are on the radar, CPPIB considers China and India as its key geographies.
Machin said CPPIB is a super-long-term investor and will hit a trillion Canadian dollars in AUM by 2033. Talking about peers, he said the others have fund structures or are very mature funds, so to buy something they have to sell something else.
“We have this very unusual pool of capital. Most pension funds are mature. We are really long term with a stable pool of capital. Secondly, scale-wise, we are going to have more and more capital to deploy,” he told Mint.
Missing India piece, challenges
Talking about the India game plan, Machin said CPPIB is keen on exploring a credit strategy. “We have not made as much progress as we would have liked. Hopefully, in a year’s time, I will be able to say that we have made progress. We have deployed some capital but are looking at a partnership approach,” he said.
The pension fund is looking to anchor its credit strategy in structured credit.
Meanwhile, the firm’s strategic partnership with its portfolio company Kotak Mahindra Bank to set up a joint stressed assets platform has been put on the back burner.
Under the agreement, signed in March 2016, the two were supposed to invest up to $525 million in stressed assets, with CPPIB having the ability to put in up to $450 million of the total amount. But this did not take off.
Back then, Adam Vigna, managing director for principal credit investments at CPPIB, had said, “This investment is an important step in CPPIB’s strategy to build a diversified credit business and will add to our direct credit investment capabilities in India.”
On the flip side, CPPIB’s global boss felt that valuation is the biggest challenge to allocate capital in India. He said India has the highest price-earnings multiple among major markets and in Asia.