OTPP Closes Hong Kong Office, Shifts Some Staff to Singapore

James Bradshaw of the Globe and Mail reports Ontario Teachers’ Pension Plan closes Hong Kong office:

Ontario Teachers’ Pension Plan is closing its Hong Kong office and shifting some staff to Singapore, as the $256-billion pension fund looks to streamline its operations in Asia.

The office, first opened in 2013, had already been pared back, as Teachers shifted its focus abroad and pulled back in China. The Hong Kong outpost currently houses about 20 staff who are mostly focused on private equity and venture capital investments.

Spokesperson Dan Madge said Teachers “made the difficult decision to close our Hong Kong office and plan to wind down on-the-ground operations” over the next 18 months or more.

The pension fund, which manages retirement savings for about 340,000 members who are mostly working and retired teachers in Ontario, opened offices in Singapore in 2020 and Mumbai in 2022.

“We will be optimizing our footprint in the Asia-Pacific region through our offices in Singapore and Mumbai, where we have teams focused across asset classes and regional markets,” Mr. Madge said in an e-mailed statement.

Bloomberg News first reported Teachers' decision to close the office.

Teachers plans to offer some Hong Kong-based employees a chance to move to its Singapore office, while others will leave the pension fund, Mr. Madge said.

In recent years, Teachers has pulled back on investments in China, as the business and political climate became more fraught. The pension fund paused direct investments in private assets in China in 2023, and that freeze is still in place. At the time, the pension fund had about $5-billion invested in China.

More recently, most of the investments Teachers makes from Hong Kong have been into markets such as Australia, New Zealand, Korea and Japan. The pension fund’s executive managing director in charge of the Asia-Pacific region, Bruce Crane, is based in Singapore.

“We believe these activities can be effectively and efficiently served out of Singapore, which enables us to bring together teams currently split across two locations,” Mr. Madge said. “The Asia Pacific region continues to be part of our long-term strategy.”

Major Canadian pension funds have added offices abroad over the past decade, preferring locations such as Singapore and Hong Kong for on-the-ground expertise in Asia. But in February, Alberta Investment Management Corp. closed offices in Singapore and New York to cut costs, little more than a year after it opened them.

Teachers had about 7 per cent of its assets, or $22-billion, in the Asia Pacific region as of the end of 2023. Of that total, 35 per cent was in private equity investments, with a further 24 per cent in infrastructure.

Teachers will report its financial results for 2024 on March 20.

Ontario Teachers' is reporting tomorrow and I will cover the results.

As far as closing down its Hong Kong office, I can't say I'm shocked.

In June of last year, Reuters reported it trimmed its venture growth team for Asia:

HONG KONG, June 19 (Reuters) - Ontario Teachers' Pension Plan (OTPP), Canada's third largest pension fund, said it has laid off four dealmakers in Hong Kong on its Asia venture and growth equity investment team, which will now focus on India.

 

OTPP did not disclose the names of the team members who were let go, but three people with knowledge of the matter said they included the team's leader, senior managing director Kelvin Yu, who focused on Greater China, South Korea and Japan.

 

The departures have not been previously reported.

 

The Teachers' Venture Growth (TVG) team "will continue to pursue a global investment strategy which in Asia Pacific will now primarily be focused on India for the near term," an OTPP spokesperson said in a statement to Reuters late on Tuesday.

 

"This has resulted in the closure of four investment roles in Hong Kong," the spokesperson added.

 

 "This decision is related only to our venture growth team in Hong Kong. We have (about) 25 team members based in Hong Kong and intend to maintain a presence there moving forward."

 

The shrinking of the TVG team comes amid growing tensions between China and the West, a challenging investment environment due to rising global interest rates and a difficult market for exiting investments in the country because of tougher listing rules.

 

OTPP began pulling back in early 2023, pausing new direct investments in private assets in China, which represented about 2%, or C$5 billion ($3.65 billion), of its net investments at the time.

 

Globally, TVG invests directly in technology companies across North America, Europe and Asia and had net investments worth $7.5 billion as of the end of last year, according to its website. The TVG team's India branch, which was set up in Mumbai in 2022, has two investment professionals.

 

In China, its portfolio companies include autonomous driving firm Pony.ai and community grocery shopping app Xingsheng Youxuan, both of which have counted Yu among their board members.

 

Yu and the other three senior team mates were informed last week about the job cuts, said the sources, who declined to be identified as they were not authorised to speak to media.

 

Yu did not respond to a request for comment sent via LinkedIn.

 

OTPP has built a presence in the Asia Pacific region for over a decade and has spent over $22 billion on more than 40 deals in the region, showed its website.

 

China-focused venture capital funds have raised just $1.1 billion so far this year. That compares with $16 billion raised for all of 2023, according to data from research firm Preqin.

 

The numbers are a far cry from a peak in 2018 when more than 1,000 China-focused funds raised around $120 billion.

 

Last year, OTPP closed down its China equity investment team based in Hong Kong and Canada's largest pension fund CPP Investments axed at least five investment professionals at its Hong Kong office, at a time when Ottawa's ties with Beijing had frayed over a number of issues.

And back in April 2023, Reuters reported that OTPP closed down its China equity investment team based in Hong Kong:

In a statement to Reuters, OTPP spokesperson Dan Madge confirmed the firm will “no longer have country-focused stock-picking teams based in Asia”, resulting in the departure of five of their staff in its Hong Kong office.

“While this decision was not an easy one to make given the impact to our team, we feel it reflects the right model for our high conviction stock selection process going forward, with a centralised team based in Toronto pursuing investment opportunities in Asia as they do for other regions,” Madge said.

All these incremental moves led to the big decision this week to shutter the Hong Kong office altogether.

 

Again, I am not surprised, I would have done the same thing if I was Bruce Crane and Jo Taylor.

 

Why? You can get exposure to Chinese equities passively via indexes and add alpha via hedge funds or long only managers and no need to have an office for that.

 

As far as Teachers' Venture Growth, their China investments are minuscule (remember TVG manages roughly 3% of total assets) and to be blunt, Chinese venture capital isn't a hot area right now even if Chinese tech shares are doing relatively well these days.

 

China is a tough market to penetrate in private markets so it's best to focus their attention in other areas of APAC like Australia, New Zealand, India, Korea and Japan.

 

Nobody likes to see offices closed and employees fired but some of the employees will move to Singapore where others will leave the organization.

And this is not the same thing at AIMCo shuttering its New York and Singapore office, that was a purely political decision done to "save costs" but in the end it will end up costing them more to farm out assets (should have kept New York open and given Singapore more time to close bigger deals).

 

Lastly, I recently learned Romeo Leemrijse who had replaced Karen Frank as Head of Teachers' Private Capital has left the organization.

 

Dale Burgess, Head of Infrastructure & Natural Resources was appointed as interim head of the group as they conduct an external search. 

The only thing I will mention here is I heard nothing but good things about Romeo and it's too bad he left the organization but these are difficult decisions and it just shows you how intense the competition is in private equity right now.

 

Alright, let me wrap it up there, tomorrow I will cover OTPP's 2024 results and wanted to get this comment out and will let Jo Taylor add anything else.

Below, Bloomberg's Claire Ruckin reports on why private equity firms are dialing down on equity.

Also, Nicolas Véron Senior Fellow of Peterson Institute for International Economics (PIIE) joins guests Josh Lerner of Harrvard Business School and Rui Ma, Founder of Tech Buzz China, to discuss the rise and decline of venture capital in China.