OMERS' Big Push Into Asia?
Top Canadian pension fund The Ontario Municipal Employees Retirement System (Omers) is expecting to add up to C$12 billion ($9.5 billion) in additional investments in Asia by 2025, and intends to supplement its regional investment team by five more people to facilitate the growth.
Omers currently has 10% of its total C$105 billion assets under management (AUM), or C$10.5 billion, allocated to Asia, with C$3.6 billion invested in equities and fixed income, and the remainder spread across infrastructure, private equity, and real estate.
Ashish Goyal, head of Omers Capital Markets Asia in Singapore, told AsianInvestor that he expected the Asia allocation to increase to 15% by 2025. “That is the strategic intent. If [we identify] more opportunities, we will get there faster. If there are fewer, we will get there slower,” he explained.
“Compared to our peers, we are [relatively new] to Asia. The fund is growing: we are allocating more of the incremental growth to Asia,” he added.
By 2025, a combination of investment gains and contributions will see Omers’s total AUM increase to between C$130 billion and C$150 billion, so a 15% allocation at that point would be worth between C$19.5 billion and C$22.5 billion. By 2030, its total AUM will have risen further, to between C$170 billion and C$200 billion, Goyal estimated.
Roughly two thirds of the fund's new Asia allocations to capital markets will be channelled to fixed income, and one third to equities, he said.
Goyal noted that the fund was following a “crawl-walk-run” approach and was planning to hire five more to the 12-person capital markets team based in Singapore over the next few years – with two in equities, two in credit, and one in partnerships.
PUBLIC VS PRIVATE
Omers Capital Markets will retain a 50-50 split between public and private credit in Asia.
Its public credit allocations are mainly BB-rated high-quality, high-yield names. In keeping with its high concentration of investments in China, the fund plans an allocation of up to 50% to China and the rest to India, Australia, and other Asian markets by 2025.
“Investment grade in Asia is not of interest to us, mainly because we can access a deep and liquid investment grade market in the US and North America,” Goyal said.
Omers Capital Markets’ large Asia private credit exposure is allocated partly via Orion Capital Asia, a mid-market lending firm backed by Omers as a 50% shareholder. Omers Capital Markets has already deployed C$150 million through Orion on a separately managed account.
“This is a very close partnership [through] which we are deploying [the funds]. There is a lot more to come, with good strong [pipeline] ahead,” Goyal said.
The largest private credit allocation is to India, followed by China, although the firm declined to give allocation sizes.
Eighty percent of the Indian credit allocation is in local currency. “We expect the [Indian] rupee to depreciate in line with its long-term trend,” he said.
Meanwhile, all of China’s allocation is in offshore hard currency credit, as a result of capital controls and concerns about the legal rights of creditors. “There will be a time when this will change. This is a huge market. We won’t be frontrunners but fast followers. Inevitably there will be some creditor defaults, and precedents for creditor rights and claim processes will be established,” said Goyal.
The fund is also looking at a transaction in Australia, where it likes the correlation with the Canadian dollar, but declined to give details. It takes a centrally managed currency hedging approach.
The majority of Omers Capital Markets’ Asia allocation is invested in-house. Over the next five years, Goyal predicted a small increase in the use of external managers or partners, noting the fund was looking to hire a specialist in this area. “In the medium term, there will not be more than 10% to 15% deployed through partners,” he said.
Goyal said Omers Capital Markets’ long-term investment horizon allows it to negotiate hard on fees, require higher hurdle rates, and generally reject Catch-Up structures.
Omers Capital Markets currently has a small equity allocation through one manager that it declined to name.
The fund concentrates its equity allocation, which currently comprises 34 holdings, in a universe of 400 highly liquid stocks in Asia’s largest markets. India is its largest allocation, followed by China, then Australia, but the fund also allocates to Korea, Taiwan, and Indonesia. “We have two criteria: liquidity and quality,” said Goyal.
Omers Capital Markets Asia invests in pre-IPO late-stage funding, and has struck three deals that occurred between two to 18 months before IPO. Goyal said the fund was comfortable in this niche sector, which required a lot of due diligence and legal skills.
Goyal said Omers was keen to communicate to firms in Asia that it was comfortable investing across the capital structure. “It could be a family-owned business, a professionally run company, or a PE company that needs capital for its companies,” he said.
He pointed to its investment in Hong Kong-listed ESR Cayman, a logistics real estate platform, as an example. Omers is currently its largest shareholder, with a 14.91% stake worth nearly C$1.5 billion.
Excellent article featuring great insights from Ashish Goyal, Senior Managing Director, Capital Markets Asia, Singapore.
You can read more about Mr. Goyal here:
Ashish joined OMERS in July 2019. Based in Singapore, Ashish is responsible for OMERS Capital Markets business in the Asia Pacific region, focusing on investments across the capital structure of Asian companies.
Before joining OMERS, Ashish has built, managed, and led high-performance investment teams at leading global asset managers, based out of offices in Mumbai, Singapore, and Hong Kong, with management responsibility for more than US$20B in client assets. He has over 27 years of investment experience in Asia and global emerging markets.
Ashish has a Bachelor’s Degree in Mechanical Engineering from the College of Engineering, Pune, and an MBA from the Indian Institute of Management, Ahmedabad. He is also a Chartered Financial Analyst.
Ashish is actively committed to diversity and inclusion in the workplace. He serves as a mentor and a ‘Male Champion’ of the Financial Women’s Association Singapore.
Clearly, Ashish Goyal and his team are busy looking at deals across the capital structure in Asia.
OMERS currently has 10% of its total C$105 billion assets under management (AUM), or C$10.5 billion, allocated to Asia, with C$3.6 billion invested in equities and fixed income, and the remainder spread across infrastructure, private equity, and real estate.
So, investing up to up to C$12bn more into Asia by 2025 is a huge increase, more than doubling that allocation in four years.
The article states roughly two thirds of the fund's new Asia allocations to capital markets will be channeled to fixed income, and one third to equities.
And OMERS Capital Markets will retain a 50-50 split between public and private credit in Asia, with public credit being more high yield.
OMERS Capital Markets’ large Asia private credit exposure is allocated partly via Orion Capital Asia, a mid-market lending firm backed by OMERS as a 50% shareholder. OMERS Capital Markets has already deployed C$150 million through Orion on a separately managed account.
Here is the background on Orion Capital Asia:
Orion Capital Asia provides loans to middle market businesses in Asia-Pacific that are owned by both private equity sponsors and local entrepreneurs.
In December 2020, the management team that spearheaded private credit efforts of Olympus Capital Asia since 2012 spun out from Olympus Capital Asia and rebranded the private credit business as Orion Capital Asia.
The team has deep experience investing in the Asia-Pacific region across economic cycles and Orion Capital Asia has demonstrated a strong investment track record built on direct origination, robust structuring, and prudent underwriting.
Subsequent to the spin-out, OMERS made an equity investment into Orion Capital Asia. The investment by OMERS will significantly strengthen Orion Capital Asia’s existing platform and accelerate its growth plans.
OMERS, founded in 1962, is one of Canada’s largest defined benefit pension plans, with CAD$109 billion in net assets as at December 31, 2019. OMERS is a jointly-sponsored pension plan, with 1,000 participating employers ranging from large cities to local agencies, and over half a million active, deferred and retired members. OMERS members include union and non-union employees of municipalities, school boards, local boards, transit systems, electrical utilities, emergency services and children’s aid societies across Ontario, Canada. Contributions to the Plan are funded equally by members and employers. OMERS teams work in Toronto, London, New York, Amsterdam, Luxembourg, Singapore, Sydney and other major cities across North America and Europe – serving members and employers and originating and managing a diversified portfolio of high-quality investments in public markets, private equity, infrastructure, and real estate.
And here is their investment approach:
Orion Capital Asia provides medium term secured loans to middle market businesses that are owned by both private equity sponsors and local entrepreneurs. These loans finance organic growth and acquisitions where the companies have been under-served by traditional banking channels.
We seek to deploy capital which generates superior risk adjusted returns and attractive cash yields for the investors with strong downside protection and minimal volatility through economic cycles.
We employ a disciplined investment and due diligence approach on all borrowers, sponsors and collateral when evaluating potential investments, and pursue a proactive and engaged asset management process to ensure the desired outcomes.
We have a deep commitment to transparency, professionalism, and integrity in our business dealings. We endeavour to ensure that all parties with whom we do business with, can rely on us to operate in a responsible and ethical manner.
There's no doubt a large part of the assets in fixed income are going to be deployed through Orion Capital Asia.
With yields at record lows, private debt is a hot area for Canada's large pensions, but there are risks which is why you need an experienced team, especially in Asia where the market is more fragmented and relationships matter a lot more.
Below, an older interview (2011) with Ashish Goyal, then CIO for Asian Equities, Prudential Asset Management (Singapore) where he shared his positioning in the Asian dividend portfolio, and why he prefers some countries more than others as dividend plays.