Tuesday, April 10, 2018

Canada's Pensions Investing Big in India?

Avik Desi of the Times of India reports, CPPIB invests additional $147 milllion in Island Star Mall:
Canada Pension Plan Investment Board (CPPIB) has invested an additional $147 million in Island Star Mall Developers Pvt Ltd (ISMDPL), an investment platform set up with The Phoenix Mills last year, the two companies said.

Through this second tranche, CPPIB has increased its investment into Island Stars to about $260 million for a 49 per cent stake with The Phoenix Mills, led by Atul Ruia, owning the remaining,

The additional funding will allow ISMDPL to undertake new developments and acquisitions, creating new retail-led mixed-use assets that will offer superior shopping and entertainment experiences. The platform was set up to develop, own and operate retail malls across India.

"Over the past 12 months, the investment platform has received support from PML and CPPIB to identify opportunities for deployment of these funds in key cities," said Ruia, joint managing director of Phoenix.

“Through this platform, we have identified strategic assets over the last 12 months that will help us expand our retail portfolio in India, allowing CPPIB to participate in the growing retail sector in India,” said Andrea Orlandi, managing director, head of real estate investments- Europe, CPPIB.

Phoenix, which heralded the transformation of Mumbai's textile mill lands into upscale real estate developments, beginning with Palladium and High Street Phoenix in Lower Parel, has more than 17.5 million sq ft in retail, hospitality, commercial and residential assets.
Swaraj Singh Dhanjal of livemint also reports, CPPIB invests additional Rs938 crore in Island Star Mall Developers::
Canada Pension Plan Investment Board (CPPIB) Tuesday said it has invested an additional Rs938 crore in Island Star Mall Developers Pvt. Ltd, a platform it co-owns with The Phoenix Mills Ltd.

With this, CPPIB has increased its investment in Island Star to a total of Rs1,662 crore, constituting a 49% stake.

Last April, the pension fund had announced that it will invest a total of approximately Rs1,600 crore (approximately $250 million) in multiple tranches, to eventually own up to 49% in Island Star.

The additional funding will allow Island Star to undertake new developments and acquisitions, creating new retail-led mixed-use assets.

“The investment platform we’ve created with The Phoenix Mills Ltd is executing well, and we are pleased to fund the second tranche of the commitment that will allow us to further expand our retail focussed investment platform,” said Andrea Orlandi, managing director, head of real estate investments- Europe, CPPIB.

“Through this platform, we have identified strategic assets over the last 12 months that will help us expand our retail portfolio in India, allowing CPPIB to participate in the growing retail sector in India,” Orlandi added.

Since its inception, the platform has acquired a land parcel in Pune and is exploring other investment opportunities.
You can read CPPIB's press release on this deal here:
Canada Pension Plan Investment Board (CPPIB) has invested an additional INR 9.38 billion (C$185 million) into the Island Star Malls Developers Pvt. Ltd. (ISMDPL), the strategic investment platform it co-owns with The Phoenix Mills Limited (PML). Through this second tranche, CPPIB has increased its investment into ISMDPL to a total of INR 16.62 billion (C$328 million), for a 49% ownership stake, with PML owning the balance 51% stake.

The additional funding will allow ISMDPL to undertake new developments and acquisitions, creating new retail-led mixed-use assets that will offer superior shopping and entertainment experiences.

“The investment platform we’ve created with The Phoenix Mills Ltd. is executing well, and we are pleased to fund the second tranche of the commitment that will allow us to further expand our retail-focused investment platform,” said Andrea Orlandi, Managing Director, Head of Real Estate Investments – Europe, CPPIB. “Through this platform, we have identified strategic assets over the last 12 months that will help us expand our retail portfolio in India, allowing CPPIB to participate in the growing retail sector in India.”

Since the inception of the platform, ISMDPL has acquired a land parcel in Pune (Wakad), and is exploring other investment opportunities.

"I am very excited with the progress that we have made along with CPPIB. In April 2017, when The Phoenix Mills Ltd. co-created the investment platform with CPPIB, we had envisaged to fully deploy the money within one year. Over the past 12 months, the investment platform has received support from PML and CPPIB to identify opportunities for deployment of these funds in key cities. I look forward to this new journey for us where we will continue to create marquee retail destinations," said Mr. Atul Ruia, Joint Managing Director, The Phoenix Mills.
Why is CPPIB investing in India? In case you haven't noticed, India's economy is booming. Rishi Iyengar of CNN recently reported that India is building a city from scratch to attract foreign investors.

If that doesn't impress you, read about how India's richest man, Mukesh Ambani, is now focusing his attention on banking after disrupting the country's telecom sector, driving weaker players into bankruptcy.

There is huge money to be made in India over the coming decades and both domestic and foreign investors are trying to grab a slice of the pie.

But unlike China, India's path to growth has been less than stellar. The country has favorable demographics, a young and educated workforce, but corruption and a bureaucratic legal system have plagued the country's growth prospects as has massive inequality which threatens India's "invisible" middle class.

Still, despite these structural challenges, there is no denying India is now the world's fastest-growing large economy, and probably will be for years if not decades to come. Some think it will even outgrow China but to do this, it first needs to invest in next-generation value chains to succeed.

Retail investors looking to invest cheaply in India can do so through a low-cost ETF like the iShares MSCI India ETF (INDA).

As shown below, it got hit recently along with the rout in global public equity markets but has performed nicely over the last couple of years (click on image):


Unfortunately, Indian stocks, just like Chinese (FXI) and emerging market stocks (EEM) don't entice me over the next year because I think those cumulative Fed rate hikes are going to start biting, so I would use any rally in these risk assets to book my profits and start shorting these shares.

Admittedly, this is a short-term call, one that is based on my global macro call that goes way beyond any trade wars, which seem to be averted following president Xi's announcement to 'open' China, including lowering tariffs on imported autos and other items.

Basically, I see a slowdown in the global economy ahead, one that maybe explains why China is all of a sudden "opening up' its economy, lowering tariffs and playing nice.

But a sophisticated long-term investor like CPPIB doesn't need to invest in India only through stocks. It can invest in real estate, private equity and infrastructure (private markets) provided it finds the right partners to invest alongside with.

And it's not just CPPIB investing big money in India. Last September, it was reported that PSP Investments and Ontario Teachers’ Pension Plan (OTPP) were in talks to invest Rs 4,000 crore in an investment platform co-promoted by the government of India-sponsored National Investment and Infrastructure Fund (NIIF).

The Caisse de dépôt et placement du Québec recently announced it has invested approximately $26 million in Fundamentum, a venture capital fund company based in India:
“The Fundamentum management team has a remarkable track record in the technology sector,” said Michael Sabia, president and chief executive officer of the Caisse. “By fostering long-term investments and acting as a mentor to companies, the team provides an entrepreneurial approach that is fully aligned with that of CDPQ. As India ranks as the world’s third-largest technology startup hub, this new partnership will enable the selected startups to scale their businesses and participate in one of the fastest growing parts of the country’s economy. We view this as the beginning of a long‑term partnership leading to subsequent rounds of investment.”

Said Fundamentum co-founder Nandan Nilekani: “Both Fundamentum and CDPQ are bullish about the opportunity to build a host of large and enduring world-class organizations out of India, in the next decade and beyond. I expect this long-term partnership to deliver tremendous value to the technology entrepreneurship ecosystem in the country.”
There is little doubt that India has great long-term growth prospects and sophisticated Canadian pension funds are positioning themselves to be part of this growth.

It's too bad Prime Minister Justin Trudeau's recent week-long trip to India was a national embarrassment and a colossal failure. At least Texas Governor Greg Abbott received a more appropriate welcome and even got to meet with Indian Prime Minister Narendra Modi for an hour at Modi's official residence (see clip below where he discusses NAFTA and why Texas wants to export a lot more to India).

Oh well, our PM may have bungled up his trip to India but I doubt Canada's large pension behemoths will bungle up their investments in that country. These investments will pay great long-term dividends to Canadian pensioners even if India experiences some setbacks along the way.

Update: An astute pension fund manager shared these wise insights with me:
Yes, Canadian pension plans are investing more in India but the amount invested is still barely a drop in the bucket. That is especially the case for CPPIB which now has over $330B. The real estate investment you mentioned is now about $260 Million - so that is some like 7 basis points of the fund. That is the problem with investing in a lot of these markets - it is hard to deploy significant amounts of capital. But all of the funds are sowing seeds for the future.
I thank him for sharing his thoughts with my readers and it's important to note that even though Canadian pensions areinvesting more in India, it's still a pittance relative to their overall portfolio.


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