OTPP's Ben Chan On Their Focus in Asia-Pacific
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.
APAC EXPOSURE
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.”
Good interview with Ben Chan, Senior Managing Director, Asia-Pacific Region at OTPP.
It has been a little over a year since Ben was appointed to this position and Nick Jansa was appointed as Senior Managing Director for its Europe, Middle East and Africa market.
Ben has an extremely important role to play at OTPP bolstering its investments in the APAC region.
He oversees a staff of 60 people based in Hong Kong (40 people) and Singapore (20 people).
His team focuses on four asset classes: Real Estate, Infrastructure, Equities (includes Private Equity) and Teachers' Innovation Platform which focuses on late-stage venture and growth equity investments in cutting-edge technology companies.
In terms of country focus, he states in Australia, OTPP tends to invest in infrastructure but is engaged in several real-estate private equity deals. In China, it focuses more on equities and investments through TIP and in India it has so far invested in infrastructure and equities.
He also adds: “Those are the three markets but in time we will expand our coverage of the developing markets in ASEAN.”
I've covered all the deals Ben mentions above. For example:
- At the end of last year, OTPP partnered with KKR and PSP Investments to acquire all the issued securities of Spark Infrastructure or approximately $3.9 billion. You can read details here.
- Last May, US-headquartered real estate firm Hines launched a flagship fund for the Asia-Pacific region, Hines Asian Property Partners (HAPP), with a $400 million investment from Cadillac Fairview. You can read my coverage here.
- Last September, OTPP joined CDPQ and HBIV to acquire a 33.4% interest in Greenstone, one of Australia and New
Zealand’s leading insurance distributors. You can read details here.
- Last November, OTPP invested along with CPP Investments in the Infrastructure Investment Trust (InvIT) of the National Highways Authority of India (NHAI). You can read details here.
- More recently, Princeton Digital Group closed equity investments from Mubadala as a lead investor for $350 million. OTPP and Warburg Pincus also invested in this round with the total exceeding half a billion dollars.
As you can see, OTPP has been very busy expanding its investments in the Asia-Pacific region.
Now, in a recent interview, OTPP's CEO Jo Taylor was asked about their foreign investments and he responded:
You’ve said Teachers will be investing more of its money— half of all private investments—in foreign markets. There are special risks in investing overseas, where you don’t know the nuances of the markets. How do you avoid making mistakes?
The best way is to employ local investors, because they understand that market better than I might from here. Historically, we’ve invested in about 50 countries. We’ve baked that down to nine, to have that very clear, locally based strategic focus on how we win in those markets. The key considerations for me are: Is the government predictable and stable? What’s our view of the economy? What’s our view of regulation, and is it predictable? And the last one, which is also super important, is, What’s the currency doing? We’ve had some countries where we’ve been able to make attractive local returns, but by the time you convert it back to Canadian dollars, it’s less attractive.
This helps explain why Australia remains a favorite destination to invest for OTPP and other large Canadian pensions.
Still, China, India and other Asian markets offer tremendous opportunities but the approach has to be right and you need the right strategic partners on every deal.
Lastly, as far as inflation, OTPP is investing more in real assets, commodities and natural resources to hedge its portfolio against inflation risks.
It's not alone in doing this, other large pensions have followed suit.
Core infrastructure assets, in particular, are very sought after right now as they provide stable income with an inflation adjustment component.
These assets are riskier than bonds but over the long run, they provide better returns and their values increase along with inflation.
The same can be said about real estate but there you need to be careful and more discerning across sectors and geographies.
Alright, let me wrap it up there.
Below, Ontario Teachers’ Pension Plan Senior Managing Director Karen Frank discusses the pension fund's investment strategy on "Bloomberg Surveillance." Great interview, posted it again because it's worth watching.
Also, Niel Thassim, Managing Partner, Private Funds and CEO of Brookfield Singapore, discusses trends, investments, and potential opportunities in the real estate market in Asia-Pacific for 2021 and beyond (October 2021). Take the time to watch this., it's packed with great insights.
Lastly, APREA's Asia Pacific Real Assets Leaders’ Congress 2021 featured a powerhouse line-up of thought leaders, trailblazers, and key market players, exploring trends and innovations that will shape the future of the real assets industry.
Watch this great fireside chat between Jeremy Ong, Partner at Baker & McKenzie, and Jeffrey Perlman, Managing Director, Head of Asia-Pacific Real Estate and Southeast Asia, Warburg Pincus (November 2021). Perlman really dives into many important points hitting the real estate market.
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