OMERS Looking at Asia-Pacific Infrastructure

Florence Chong of IPE Real Assets reports OMERS plans to ramp up exposure to Asia-Pacific infrastructure markets:

Canadian pension fund OMERS is poised to step up its exposure to Asia’s infrastructure market, focusing on renewables, telecommunications and transport.

Prateek Maheshwari, managing director at OMERS Infrastructure, told IPE Real Assets: “The intention is to further grow the success we have in the region.”

Maheshwari, who is to relocate from London to Singapore next year to spearhead the investor’s expansion in the region, said: “We believe in the long-term growth and demographics of the region.”

Last year, OMERS Infrastructure made its entry into the region, paying C$160m (€102m) for a 22.4% stake in Indinfravit Trust, which owns a collection of toll roads in India.

Maheshwari said India’s toll-road sector could offer further opportunities as the country moved to modernise its transportation network and build new toll roads.

He also anticipates opportunities in renewables. “Electricity demand is growing in India and, given India’s climate goals and commitments to the Paris Climate Agreement, there will be further opportunities for investment,” he said.

Renewables and digital communications infrastructure are two growth sectors OMERS has idenfitied in Asia, and Maheshwari said it would look to Japan, South Korea and Taiwan.

The larger economies of Southeast Asia, such as Indonesia, Malaysia and the Philippines, were also going through urbanisation, and would present new investment opportunities, he added.

Although OMERS Infrastructure did not establish a presence in Asia until 2018, when it set up an office in Singapore, it had, from 2012, established relationships with Asian investors through its Global Strategic Investment Alliance (GSIA).

The GSIA, a US$12.5bn (€10.6bn) co-investment programme, ended its fundraising in June 2014 and includes Japan’s Government Pension Investment Fund, the Development Bank of Japan, the Pension Fund Association of Japan, and consortium led by Mitsubishi Corporation.

“Institutional partnerships have been and would continue to be a key element of our investment strategy,” said Maheshwari.

“The intent for me is to further develop those relationships, while also working to see if we can extend that our wider OMERS Infrastructure network to include new names in Asia.” 

Asked about Singapore’s GIC, he said the sovereign wealth fund has been a co-shareholder in some assets in other regions with OMERS.

OMERS maintained an ongoing “broad relationship dialogue” with all of its large Asian capital partners, he added.

While not going into specific targets for allocations to Asia, Maheshwari said: “When we entered Asia, we were driven by a desire to build on the success we have in North America and Europe.”

OMERS is currently heavily concentrated in North America. In 2019, 72% of its total assets (C$109bn) were located there, with 17% in Europe and 8% in Asia-Pacific.

OMERS is highly concentrated in North American assets and when you include Europe, that's 90% of its assets.

Asia-Pacific represents a mere 8% but this is where future growth will come from so just like OTPP and CPP Investments, OMERS has to shift its focus there.

That's the responsibility of Prateek Maheshwari, managing director at OMERS Infrastructure, and from reading this interview, I get a sense he knows exactly what he's talking about.

In April, 2018, I wrote a comment on why Canada's pensions are investing big in India, stating this:

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.

In April, 2019, I discussed how PSP's Roadis and the National Investment and Infrastructure Fund (NIIF) invested $2 billion to create a platform that will invest in road projects in India.

Today, I read that India is entering a new phase of reopening that will see subway trains running for the first time in months, despite skyrocketing daily coronavirus infections that are showing no sign of slowing down:

The country of 1.3 billion people has reported more than 75,000 infections for five consecutive days -- the fastest growing caseload of any country in the world.

 

It recorded 85,687 new Covid-19 infections last Wednesday, the world's highest single-day spike since the pandemic began, surpassing the previous record of 77,255 cases set by the United States on July 16.

India's infection rate has increased exponentially in recent weeks. It took almost six months for the country to record 1 million cases, another three weeks to hit 2 million, and only 16 more days to hit 3 million.

 

At this rate, India's total number of cases, now at over 3.6 million, is on track to outnumber that of Brazil to become the second highest in the world, behind the US.

 

But India's death toll remains relatively row compared to its infection numbers. As of Sunday, India reported 64,469 coronavirus deaths -- about half of Brazil's death toll -- with a mortality rate of 1.79%, according to its Health Ministry.

 

As infections soar, the Indian government has continued to lift lockdown measures. On Saturday, the Ministry of Home Affairs announced India will enter a new phase of reopening on September 1 known as "unlock 4."

 

That includes the resumption of the country's metro rail services in a "graded manner" from September 7, according to the ministry's statement. 

 

Under the new rules, gatherings of up to 100 people will be permitted at sports, entertainment, cultural, religious and political events outside of hot-spot areas from September 21, with mandatory face-mask wearing and social distancing measures.

 

Schools and colleges will remain closed until the end of September, although up to 50% of the teaching staff will be allowed to return to campus to teach online courses, and students from Year 9 to 12 can also return on a voluntary basis. 

Up until recently, India was doing relatively well with COVID-19 infections, but that has changed dramatically and the country's infection rate has increased exponentially in recent weeks.

 

The death toll remains relatively low but this can change in a heartbeat in a country like India where there are densely populated cities and rampant poverty.  

 

Last week, I discussed how Gatwick's woes are impacting Canadian pensions heavily invested in transportation infrastructure. 

I followed up with a comment on how sovereign wealth funds are rethinking real estate and shared this:

[...] Michel Leduc, Senior Managing Director & Global Head of Public Affairs and Communications at CPP Investments, sent me some information on their sector breakdown for Real Estate, Infrastructure and Real Assets:

Real Estate:

Infrastructure:

Real Assets:

I thank Michel for sharing this information with my readers and it shows you even though CPP Investments has 29% in industrial properties (logistics), it still has a significant exposure to Retail (23%) and Office (29%). 

Interestingly, CPP Investments also has 12% in Ports and Airports (I think it's mostly ports) and 57% in toll roads (owns a controlling interest in Highway 407, it's most significant infrastructure investment).

As I discussed yesterday when I went over Gatwick's woes, the pandemic is wreaking havoc on transportation infrastructure assets, some more than others, and it will impact Canada's large pension funds.

Still, unlike retail real estate, they will stay the course with airports, ports and toll roads, betting the long term secular trend remains intact.

CPP Investments' CEO Mark Machin is on record stating they "like airports"  and he hopes the CPP Fund can one day buy big stakes in Canada's major airports.

As you can see, transportation infrastructure (ports, airports, toll roads) make up the bulk of the infrastructure investments at CPP Investments and this is the case at all of Canada's large pensions.

 

There's no question the pandemic has hit these assets hard as people work from home, drive and travel less, but once the health crisis subsides, these assets will see a significant increase in utilization. 

In the interview above, Prateek Maheshwari said India’s toll-road sector could offer further opportunities as the country moved to modernize its transportation network and build new toll roads.

He also anticipates opportunities in renewables. “Electricity demand is growing in India and, given India’s climate goals and commitments to the Paris Climate Agreement, there will be further opportunities for investment,” he said.

Renewables and digital communications infrastructure are two growth sectors OMERS has identified in Asia, and Maheshwari said it would look to Japan, South Korea and Taiwan.

Think about it, as more and more Indians enter the middle-class, they will be buying one or two cars, driving more and using the internet at home or their cell phones to do online shopping. 

This requires cell towers and data centers, two hot infrastructure areas (although data storage centers fall in between infrastructure and real estate).

Renewables will be huge in India, not just electric grids and transmission lines but solar and wind farms too. A country like India can ill-afford not to invest huge sums to bolster its renewable assets.

What else? Maheshwari is right to bring up strategic partnerships in this interview. 

Basically, OMERS, Teachers', CPP Investments, CDPQ and other large Canadian pensions need strategic partners to invest well in Asia-Pacific.

Typically, it's a large sovereign wealth fund like Singapore's GIC but there are others like large family offices and brand name private equity funds that are also investing heavily in the region.

Why do you need these strategic partners? Well, they are based there, know the region and players well, they can perform due diligence during the pandemic, and they are critically important if Canada's pensions plan on expanding and investing successfully in the region over the long run. 

It's also interesting to see OMERS is looking to ramp up its infrastructure investments in Asia-Pacific.

Last week, I had a discussion with Jo Taylor, OTPP's CEO, on their mid-year results, and he told me will soon open up their office in Singapore and  Bruce Crane, Managing Director, Infrastructure & Natural Resources, Asia Pacific, will be based there. 

I am willing to bet Mr. Crane and Mr. Maheshwari know each other very well and they might even team up on some deals in the region.

I'm also sure they will both do a great job in their respective roles.

Below, Bruce Flatt, CEO of Brookfield Asset Management, participated in the “Talks at Google” series in 2018, sharing his principles for real asset investing. The Q&A session following Bruce’s talk was moderated by Pranesh Srinivasan.

Flatt discussed his journey, the challenges faced by Brookfield over the decades, key ideas that have shaped its investment philosophy, and principles for enduring through times good and bad. Listen carefully to his comments on investing in real assets,

 

Brookfied is one of the biggest investors in India. In fact, BCI, alongside Brookfield Infrastructure Partners L.P. and its institutional partners, just announced they acquired a 100 per cent stake in a telecom tower company in India from Reliance Industrial Investments and Holdings Limited, a wholly-owned subsidiary of Reliance Industries Limited. The total equity commitment for the transaction is approximately US$3.4 billion:

The investment comprises a portfolio of around 135,000 communication towers which forms Reliance Jio Infocomm Limited's ("Jio") telecommunication network. The towers were recently constructed and strategically located for cellular network coverage across India. More towers are planned, increasing the total number of towers in the transaction perimeter to approximately 175,000, building a robust telecommunications market within the country. Jio is the anchor tenant of the tower portfolio under a 30-year Master Services Agreement, which will provide the tower company with a secure, long-term source of revenue. 

"For BCI and our clients, this investment is well aligned with our long-term strategy of investing in high quality companies and assets that fulfill essential needs of the communities in which they operate," said Lincoln Webb, executive vice president & global head of BCI's infrastructure & renewable resources program. "Data services are increasingly critical to societies and economies in today's world — promoting both opportunity for individuals and potential innovation for local communities. BCI is excited by the opportunity to invest in infrastructure that will play a vital role in enabling India's continued economic growth."  

That's a sizable infrastructure deal in India with a great partner (Brookfield) targeting communication towers. Great deal for BCI and its institutional partners.

Lastly, I embedded a clip on  FASTag, an electronic toll collection system, operated by the National Highway Authority of India (NHAI). It employs Radio Frequency Identification (RFID) technology for making toll payments directly from the prepaid or savings account linked to it. 

Pretty cool, India certainly has the technological know-how to be among world leaders in all infrastructure investments.