OTPP's Hiring Spree in Asia and Europe?

Simon Jessop of Reuters reports that Ontario Teachers' Pension Plan plans a hiring spree in Asia and Europe:
Ontario Teachers' Pension Plan, one of the world's biggest pension funds, plans to hire "extensively" in Asia and Europe over the next two years and could shift an extra C$11 billion ($8.3 billion) into infrastructure and other real assets, its chief executive told Reuters.

The fund currently employs around 1,200 people across hub offices in Toronto, London and Hong Kong, while a further 1,500 work at real estate subsidiary Cadillac Fairview.

Outgoing Chief Executive Ron Mock told Reuters that Ontario Teachers' (OTPP) could triple its current Asia headcount of around 25 people and is considering opening offices in Mumbai and Singapore.

OTPP managed around C$191 billion ($144 billion) in assets as of the end of 2018 for 327,000 working and retired teachers.

Mock said China, India, Australia, Vietnam, Indonesia and the Philippines were all areas likely to see further investment.

"We plan on growing our European and Asian operations extensively," said Mock.

"Asia represents a growth opportunity over the next 10-15 years... you can't just set up on a dime and take down on a dime when you're investing in private assets like private equity and infrastructure."

Despite political turmoil in Britain as the country inches closer to leaving the European Union, Mock said London would remain its European base and headcount could rise from around 30 to more than 50 over the next two years.

"London remains, and will remain, our home base for the UK and for Europe," said Mock.

OTPP said in July that Mock would be replaced on Jan. 1, 2020 as chief executive by Jo Taylor, who has previously led the teams in both Europe and Asia.

Brexit fears have not prompted OTPP to withdraw or postpone investment in Britain, Mock added.

OTPP is set to release its half-year results on Aug. 21.

While much of its money is spread across a range of public and private assets, Mock said OTPP was spending a lot of its time sourcing deals in infrastructure and private equity.

Currently, around 17% of OTPP's assets are invested in Europe, with around 60% of that - some C$10 billion - in Britain, largely in private assets including lottery operator Camelot and Bristol airport.

Despite being keen to add to its real asset and private equity holdings in Europe and Britain, strong competition from other institutional investors meant securing the best deals was tough.

"It's not easy, at this point in time, given pricing, particularly in infrastructure and (a) few other spots," he said, but overall, the allocation to real assets would go up. At the end of December, OTPP's allocation to real estate, infrastructure and other 'real-rate' assets was 25%, or C$49.6 billion.

"We are opening up our asset mix to allow it to range from 26% to 32% of the total fund, and so we will be looking at... probably moving up somewhere in the neighborhood of C$11 billion".
The message is clear, OTPP sees opportunities in Asia and Europe and needs boots on the ground to gain access to the best deals across private markets in these regions.

As Ron Mock explains, it takes time to nurture relationships in private markets, especially in Asia, and they need to proceed accordingly with a long-term strategic plan, hiring the right people and identifying the right partners to gain access to top deals.

OTPP isn't doing anything new here. It's basically doing what CPPIB, the Caisse, PSP and others have done, namely, developing strong hub offices in London, Hong Kong, Mumbai and elsewhere around the world to gain access to great deals in places which are growing fast.

The focus on real assets is also the same strategy all of Canada's large pensions are doing. It's basically a way to short volatile stocks and bonds now that rates are at historic lows and focus on real estate, infrastructure, private equity and private debt where you invest in businesses giving you great cash flows over the long run.

Are there risks? Of course there are but these large Canadian pensions are taking the long view and they need to develop these hub offices, staff them appropriately with talented people who know how to invest directly and nurture long-term relationships in China, India, and wherever else opportunities lie.

Jo Taylor's, OTPP's next CEO who will succeed Ron Mock at the end of the year, told me he has worked closely with Ron over the last 18 months to build Teachers' brand globally, making sure Teachers' is a "partner of choice" by making sure they have the right people in place to add value.

The focus is on building Teachers' capabilities and brand in parts of the world where future opportunities lie and where "pricing is still attractive."

He said they have built out their capabilities in Asia, Latin America, Europe and North America and wants to make sure they continue building Teachers' brand internationally.

"There's a clear strategy for developing people of different backgrounds and making them better so we are the partner of choice."

Importantly, it's not capital that will differentiate Teachers' in Asia and Europe, it's the quality of the people they have working at these international hubs building up the organization's brand. 

It only makes sense that large Canadian and global institutional investors focus on regions where growth will be and to do this properly in private markets, you need to hire the right people and nurture the right relationships, not just with private equity and real estate partners but also with sovereign wealth funds and global pensions

For example, Ontario Teachers' and AustralianSuper recently announced the will each commit $1 billion to invest in India's National Investment and Infrastructure Master Fund.

OTPP and AustralianSuper also became shareholders in National Investment and Infrastructure Fund Limited, NIIF’s investment management company and will now join the Government of India (GOI), Abu Dhabi Investment Authority (ADIA), Temasek, HDFC Group, ICICI Bank, Kotak Mahindra Life Insurance and Axis Bank as investors in the Fund.

Ron Mock is right, there is a lot of competition for deals. I recently wrote a comment on how CPPIB and CDPQ were both vying for GIP's toll roads portfolio in India. Pricing is an issue but when everyone is vying for prized assets and has a very long investment horizon, expect competition to heat up.

Lastly, I reached out to Ron Mock and Jo Taylor earlier today to ask them if the events in Hong Kong concern them. I haven't heard back from them but I suspect they both would tell me they are monitoring events very closely and taking a very long view investing in this region (Jo emailed me later today to tell me he's on vacation with spotty WiFi).

What I did hear on CNBC is that protesters are very tactical, protesting in the airport where it's hard to pepper spray them. So far, the reaction from Beijing is relatively quiet, mostly trying to sway public opinion, let's hope things don't escalate.

It's an important reminder that while there are great economic opportunities in Asia, there are also serious geopolitical risks to contend with. I guess you can say the same thing about the UK (Brexit) and even the US (upcoming elections), but China is still a communist country and if they decide to clamp down hard on protesters, it will have chilling ripple effects throughout the world.

Below, Ontario Teachers Pension Plan CEO Ron Mock says the fund has a long-term plan for China and sees it as "absolutely necessary" to be there. He speaks to Bloomberg's Erik Schatzker at the World Economic Forum in Davos, Switzerland (January 2019).

Second, Hong Kong has witnessed clashes between police and protesters since April, after the city government attempted to amend extradition laws to allow criminal suspects to be tried in mainland China. The change was seen by many as creeping influence from Beijing over the special administrative region. Hong Kong Chief Executive Carrie Lam soon pronounced the extradition bill ′ “dead” and apologized for how the situation was handled. But some experts think there’s more to the protests than just the extradition bill.

Third, Robert Spalding, senior fellow at the Hudson Institute, and CNBC's Michelle Caruso-Cabrera, join "Squawk Box" to discuss what tensions in Hong Kong could mean for the trade war and the markets. Mr. Spalding thinks the Chinese military will eventually break up Hong Kong protests.

Lastly, Javier Hernandez, China correspondent at The New York Times, joins CNBC's "Closing Bell" to report the latest escalations from Hong Kong from the ground.

Update: Lisa Papas, Managing Director of Communications and Marketing at OTPP, was kind enough to share this with me:
"With the time difference our Hong Kong colleagues were asleep when you reached out yesterday, but I did connect to double check and get the latest info. We’ve had no disruptions at our office and as you anticipated, we are monitoring the situation, as the safety of our people is our first priority." 
I'm glad everyone is safe as the situation in Hong Kong is very volatile.