OMERS on Closing the Asia Infrastructure Gap

Michael Rolland, President and Chief Operating Officer, Asia-Pacific at OMERS, wrote an interesting comment for the Milken Institute offering a Canadian pension investment executive's perspective on closing the infrastructure gap in Asia:

Twenty-six trillion dollars—that’s what the Asian Development Bank (ADB) has estimated that Asian countries will need to have cumulatively invested in infrastructure between 2017 and 2030 to maintain their respective rates of economic growth. That works out to about $1.7 trillion per year, approximately equal to the entire annual GDP of my home country of Canada.

Simultaneously, rising populations (by 2030, 66 percent of the global middle class will live in Asia), rapid economic growth, and technological progress are transforming Asia into the key world market for goods and services over the next half-century.

As the region grows, institutional investors are further compelled to consider their footprints and their investment interests in the region. As I have said before, the old days of “flying in and flying out” are coming to a close. Many institutional investors are getting ahead of the game—from staffing more employees who are fluent in languages in the region and steadily networking with asset allocators, investment managers, and government representatives, to building a stronger internal understanding of business practices, regulatory regimes, and other key nuances across the jurisdictions that make up this vast market.

As Asia becomes more important to institutional investors, these large, globally oriented pools of capital will also assume a new stature in Asia. Asian countries competing for investment capital to fund their rapid expansion in infrastructure and other areas will need to contemplate adapting laws and regulations as they build closer relationships with these institutions.

As partners in supporting economic progress, institutional investors have an opportunity to help facilitate the conversation between East and West. The design and implementation of structural reforms to attract foreign capital is one such area where we can constructively engage.

As this process unfolds, institutional investors and Asian governments have much to teach each other. Every country has its own approach to infrastructure policy and broader structural reform, while international investors have their own sets of global standards and expectations developed over decades and across jurisdictions.

Institutional investors’ experience of managing challenging and complex projects can constructively inform the process, helping bridge the gap between the international supply and demand for capital.

And let’s not underestimate just how significant the demand for capital will be. With over 400 million people across the region still lacking electricity, 300 million without access to safe drinking water, and about 1.5 billion lacking access to basic sanitation, according to the ADB, the region’s infrastructure needs are enormous.

Closing that infrastructure gap is a challenge that institutional investors can help address by putting their capital to work, directly benefiting the lives of citizens, while participating in and facilitating economic growth.

This edition of the Power of Ideas has got it right—Asia is going to redefine the world, as corporates and institutional investors from all corners of the globe seek to become part of the region’s tremendous growth story.

But this encounter will also reshape Asia, too, as laws and regulations shift in response to inflows of outside capital.

With patience, cooperation, and goodwill on all sides, this multi-decade evolution will benefit all who take part.

Mr. Rolland is absolutely right, as institutional investors increasingly focus on Asia and addressing its infrastructure needs, there is an evolution which will take place reshaping Asia and its laws and regulations to accommodate this inflow of massive capital from the West.

Just how this evolution takes place remains to be seen but it's going to happen in order to facilitate investments from global allocators into Asia.

Right now, the hot spot in Asia is India. Earlier this week, I discussed how CPPIB took an 8% stake in Delhivery, a leading third-party logistics company, for $115 million through its Fundamental Equities Asia Group.

I've already discussed how CPPIB, OTPP and the Caisse have been investing in India's toll roads and burgeoning financial services industry.

In July, I explained why OMERS is scouting India's clean energy sector, basically following others who have already established relationships and invested in renewable investments in that country.

And it's not just Canada's large pensions looking to invest in India. Brookfield Asset Management, the Canadian firm which has taken on Wall Street’s private-equity titans, has also set its sights on India.

Sam Pollock, the head of Brookfield’s Infrastructure Group and Chief Executive Officer of Brookfield Infrastructure Partners, has done a great job over the years running one of the best infrastructure funds in the world.

There's no question Asia will experience incredible growth over the next decades but there will be challenges, geopolitical risks which can materially impact infrastructure investments.

Still, Michael Rolland is right, "with patience, cooperation, and goodwill on all sides, this multi-decade evolution will benefit all who take part."

Below, OMERS Global Head of Private Equity, Mark Redman, discusses the impact of Brexit on strategy and opportunities in the private debt markets with Vonnie Quinn and Guy Johnson on "Bloomberg Markets: European Close."

Listen to what he says about rising geopolitical risks, opportunities he sees in private credit across Europe, North America and Asia and the effects of Softbank on valuations across venture capital and private equity.  He flatly states: "For us it's all about asset selection, if we continue to buy top decile assets, we are confident we can deliver the returns over the last ten years."

Also, OMERS's President and Chief Pension Officer, Blake Hutcheson, spoke at the Economic Club of Canada’s event earlier this week about how business leaders are driving innovation in the Canadian economy.

Jacquie McNish, Senior Correspondent, The Wall Street Journal and Yung Wu, CEO, MaRS Discovery District, joined Blake for a discussion about how our country can use its smaller size to its advantage and specialize in the highest-value corners of innovation, like advanced manufacturing and artificial intelligence, to stay competitive on a global scale.

I will post this discussion once it becomes publicly available. In the meantime, I posted an older discussion where Blake Hutcheson, President and Chief Pension Officer, OMERS and Chair, Oxford Properties Group discussed "The Oxford Properties Story: Building a $50 Billion Global Real Estate Success" at the Economic Club of Canada (April 2018). Great talk, well worth listening to this.