CPP Investments Backs GLP's Fourth Japan Logistics Fund
Canada Pension Plan Investment Board (CPP Investments) has extended its partnership with GLP by making a JPY110bn (€852.5bn) commitment to GLP Japan Development Partners IV (GLP JDP IV), a fund which has so far raised JPY311bn.
GLP JDP IV, which is expected to reach its full target of JPY412bn in the coming weeks, plans to have assets valued at JYP1trn when fully invested with a 50% gearing ratio. Its 2018-vintage predecessor fund GLP JDP III, which raised JPY250bn, was fully allocated in 2-3 years.
GLP JDP IV will be used to develop prime logistics facilities, mostly in Tokyo and Osaka with the first project coming online in 2025-26.
Ralf Wessel, managing director, fund management, GLP, told IPE Real Assets: “For the first time, we are seeing a portion of domestic Japanese institutions investing in our development fund. Obviously, we have a significant component in our core, open-ended Japan income fund, but not in development.”
More than 85% of the commitments came from returning investors, who had previously invested with the predecessor fund, GLP JDP III, he said.
CPP Investments was one repeat investor.
Wessel said the fund would soon reach its full target. “We have identified the investors, and it is now about execution. We expect the investors to come in prior to year-end.”
Gilles Chow, managing director and head of real estate North Asia, CPP Investments, said the positive outlook for Japan’s logistics sector, underpinned by rapid growth in e-commerce, had laid a solid foundation for the success of the new venture.
“As a long-term investor, we are confident that working with a trusted and experienced partner such as GLP will generate sustainable returns over time for CPP contributors and beneficiaries,” he said.
GLP had secured its first strategic sites in Tokyo, giving the fund “30% immediate seed pipeline”, he added.
Yoshiyuki Chosa, president of GLP Japan, said: “GLP JDP IV will feature our flagship Alfalink projects. These promote supply chain optimisation by creating modernised, end-to-end, digitalised solutions to help customers meet complex and rapidly-evolving supply chain needs.”
With the first projects expected to be complete around 2026, Wessel said the options would be to sell the listed GLP J REIT to an unlisted GLP Japan income Fund, or to the open market.
CPP Investments put out a press release on this deal, announcing it has deepened its commitment to modern logistics in Japan with a fourth Japan development venture:
Canada Pension Plan Investment Board (CPP Investments) announced today that it has committed JPY 110 billion (C$1.3 billion) to the newly established GLP Japan Development Partners IV (GLP JDP IV), the fourth modern logistics partnership in Japan between CPP Investments and GLP, a leading global investment manager and business builder in logistics.
GLP JDP IV, which has raised JPY 311 billion (C$3.6 billion) so far and is targeting JPY 412 billion (C$4.7 billion) of total equity commitments, will focus on developing modern logistics facilities in Japan, in particular large-scale projects in the Greater Tokyo and Greater Osaka areas. When fully deployed, GLP JDP IV is expected to reach over JPY 1 trillion (C$11.5 billion) in assets under management.
“We are pleased to extend our longstanding partnership with GLP and build on the success of the previous Japan development JVs. The positive outlook for Japan’s logistics sector underpinned by the rapid growth in e-commerce has laid a solid foundation for the success of the new venture,” said Gilles Chow, Managing Director, Head of Real Estate North Asia, CPP Investments. “As a long-term investor, we are confident that working with a trusted and experienced partner such as GLP will generate sustainable returns over time for CPP contributors and beneficiaries.”
Following the inaugural Japan Development Venture in 2011, the two parties have established two subsequent Japan development ventures in 2016 and 2018. The series of GLP Japan-focused logistics programs have delivered in excess of 2.7 million square metres of developments since its inception.
About CPP Investments
Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that manages the fund in the best interest of the more than 20 million contributors and beneficiaries of the Canada Pension Plan. In order to build diversified portfolios of assets, investments are made around the world in public equities, private equities, real estate, infrastructure and fixed income. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At June 30, 2021, the Fund totaled C$519.6 billion. For more information, please visit www.cppinvestments.com or follow us on LinkedIn, Facebook or Twitter.
This is a sizable commitment from CPP Investments (JPY 110 billion or C$1.3 billion) to the newly established GLP Japan Development Partners IV (GLP JDP IV), the fourth modern logistics partnership in Japan between CPP Investments and GLP, a leading global investment manager and business builder in logistics.
GLP JDP IV, which has raised JPY 311 billion (C$3.6 billion) so far and is targeting JPY 412 billion (C$4.7 billion) of total equity commitments, will focus on developing modern logistics facilities in Japan, in particular large-scale projects in the Greater Tokyo and Greater Osaka areas. When fully deployed, GLP JDP IV is expected to reach over JPY 1 trillion (C$11.5 billion) in assets under management.
Obviously, CPP Investments is the anchor investor here committing 36% of the C$3.6 billion raised so far. The fund will use leverage (50%) which is why it is expected to reach over JPY 1 trillion (C$11.5 billion) in assets under management.when fully deployed.
It took 2-3 years for the previous fund to be fully deployed and I expect the same for this one.
Gilles Chow, Managing Director, Head of Real Estate North Asia, CPP Investments explains this deal perfectly: "We are pleased to extend our longstanding partnership with GLP and build on the success of the previous Japan development JVs. The positive outlook for Japan’s logistics sector underpinned by the rapid growth in e-commerce has laid a solid foundation for the success of the new venture. As a long-term investor, we are confident that working with a trusted and experienced partner such as GLP will generate sustainable returns over time for CPP contributors and beneficiaries."
I found it interesting that Ralf Wessel, managing director, fund management, GLP, told IPE Real Assets this: “For the first time, we are seeing a portion of domestic Japanese institutions investing in our development fund. Obviously, we have a significant component in our core, open-ended Japan income fund, but not in development.”
I wonder if GPIF and other large Japanese pensions are starting to take on some more development risk in real estate and if so, this is the fund to do it in as logistics is a hot area anywhere, especially Japan and rest of Asia.
I also found what Yoshiyuki Chosa, president of GLP Japan, said very interesting: “GLP JDP IV will feature our flagship Alfalink projects. These promote supply chain optimisation by creating modernised, end-to-end, digitalised solutions to help customers meet complex and rapidly-evolving supply chain needs.”
Unless you have been under a rock since the global pandemic first started, you are aware of the huge supply chain disruptions that have occurred throughout the world because of COVID-19.
The pressure is now on ports and modern logistics facilities to optimize their operations using digital and other solutions to minimize supply chain disruptions.
Don't forget, CPP Investment recently announced a multibillion-dollar deal to buy marine terminal operator Ports America, the largest US terminal operator.
There's no doubt in my mind the folks at CPP Investments are keeping a close eye on what is going on at ports all over the world, not just the US, to gauge supply chain disruptions.
On this topic, on Sunday, ABC’s This Week had a whole segment on supply-chain disruptions and inflation. Martha Raddatz was reporting from port of Los Angeles where many container ships are waiting a month or more to unload cargo.
The report cited truck driver shortages as exacerbating supply bottlenecks, so I asked a port and logistics expert his insights and here’s what he shared, which I think is very insightful:
“It’s not just port capacity and truck drivers, it’s also rail capacity. The problem started before the pandemic.
For example, we ship tremendous amounts of oil by rail now (instead of pipeline). Same thing with grain, it is shipped by container rather than in bulk.
Major rail lines have not not really invested to increase capacity. Frankly, they don’t want to for a short term disturbance in the supply chain. They believe that trucking should alleviate the backlog until things return to normal.
Plus, there are a number of ports that are being under utilized. This is more complex because it involves pre-existing supply chains routes that are now broken.
Supply and demand will prevail and the market will stabilize but it will take another year or two.
In the meantime, it may be an opportunity to bring manufacturing back to Canada and United States.
The pendulum swung way too viciously over the last 30 years, primarily because transportation costs were too cheap. If a container cost 15K rather 1.2K, it makes offshoring a lot less competitive.
The Dollarama model falls apart completely.
The Chinese must be having a conniption because their entire economic model starts to fall apart at the seems if shipping costs actually increase and the maritime carriers earn a proper return on their capital (rather than the rather slim returns they have been earning over the last 25 years)
This is what happens when government does not view their policy decisions through multiple lenses and their decisions impact key infrastructure like railroads, roads, ports, pipelines, and the licensing of refineries. It will be the same issue with power generation and transmission lines. If you encourage people to go all electric with their heating and transportation, you better build a grid that can accommodate the transition.
With the exception of Quebec, I don’t think any other province has enough excess capacity to accommodate the transition. Even then, Quebec is selling its excess power to the US so I am not even sure they have it.
Sorry - Manitoba and Newfoundland do because of they built new hydro dams in the last few years. Again, they are selling the excess power to the US though.”
Now this person knows ports and logistics very well and he's absolutely right, the problem of supply chain disruptions predates the outbreak of the global pandemic. The latter only exacerbated it.
Also, there are major geopolitical shifts going on and if the Chinese model is threatened, we should anticipate a policy response and more tension between the US and China.
Lastly, on the shift to net zero, there's no question our current electric grid capacity is unable to support the shift to net zero.
On this last point, Dominic Clermont, formerly of CDPQ, sent me this:
I liked your comment on “ABC’s This Week” (posted on Linkedin here).
In particular regarding power generation and transmission lines. The planet is converting to electric cars at a fast speed as if electricity was much greener than oil. Is it so? As you pointed out, electricity is green in Quebec. But where does it come from in the rest of the world? For countries/regions producing electricity from coal or nuclear, is it really green? How come nobody talks about that? And what about the bottleneck it will create if people would convert to full electrical car too quickly? Governments are forcing the conversion to electrical cars in a very short time frame. It does not make sense. Furthermore, 100% electric cars requires huge batteries. These batteries are very costly and they generate waste/pollution when the car is at the end of its life (or we need to find ways to recycle).
I had a hybrid car for close to 14 years. It saved me gas when stopping at red lights. I also changed my way of driving so that I recuperate energy when I need to slow down or stop. I recently changed my hybrid car for a Plug-In Hybrid (PHEV). It has an autonomy of about 60km on electricity only. But most people do not drive more than that daily – which means that they could drive on electricity most days. On weekends, when you drive longer distance for leisure activities, then the gas engine kicks in. If you drives 40-50 km/day on electricity, that adds up to 15,000-18,000 km per year. I don’t have the detailed battery cost but let’s say the 60km battery cost $2,000, and the big 600km battery cost $20,000. People could get the $2,000 battery and save some 75% on yearly gas. One would need to pay an extra $18,000 for the extra 25%. The math does not add-up. The small 60km battery gives you most of the saving. And the full electric car still have big limitations that PHEV do not have.
But the main puzzle in this new green world remains: Where are we going to take all that electricity worldwide? Most likely not green source. Where are the environmentalist on that topic? The global economy is naturally into a green transition as solar panel is now the cheapest source of energy and cost continues to go down. Let the market play and the world will become greener (at least if you live down south where there is sun all year). And in the meantime, PHEV is where we get the best drop in oil consumption for one’s money. But even with PHEV, you can’t convert everyone too quickly as there would be issues with power generation and transmission lines.
I thank Dominic for sharing his insights and fully agree with him, the world wants to shift to net zero but most countries aren't prepared for this shift and many of them will increase pollution significantly as they shift.
There are many smart people working at CPP Investments and other large Canadian pensions which can elucidate us on these challenges but I do think it's important to think critically about these issues.
In related news, Votorantim and CPP Investments announced they will form a renewable energy company:
Brazilian investment company Votorantim and Canada Pension Plan Investment Board (CPP Investments) are to consolidate their energy assets in Brazil.
The two companies will create an integrated renewable energy firm with an installed capacity of 3.3GW.
The combined entity will have net revenues of BRL5.8bn ($1.05bn), based on the 12 months to 30 June.
Its diversified energy portfolio will include 2.3GW of hydroelectric capacity and 1GW of capacity from wind power assets, as well as 0.6GW of operational capacity.
The process of asset consolidation and public listing will be carried out in two separate transactions.
Under the first transaction, VTRM, a joint venture company of Votorantim Energia and CPP Investments, will acquire the two companies’ equity stakes in various renewable energy assets and consolidate them.
These will include Votorantim Energia’s stake in hydropower assets, Votorantim Comercializadora de Energia, power producer Companhia Energética de São Paulo (CESP), and VTRM’s existing wind and solar assets and projects.
CPP Investments will also invest a further BRL1.5bn to increase VTRM’s capital base.
As part of the second transaction, VTRM has submitted a proposal to CESP’s board of directors for merging CESP’s shares into VTRM and further consolidating assets.
The proposal will be discussed by an independent committee of CESP’s board.
Votorantim president João Schmidt said: “Alongside a partner like CPP Investments, which has shared our long-term views on energy since 2017, we are ready to accelerate our role in the sector.
“Through the assets’ consolidation into a single platform, Votorantim and CPP Investments will share in a new cycle of growth and value generation together with current CESP shareholders, following the highest governance standards of the Novo Mercado segment.”
CPP Investments managing director and sustainable energies head Bruce Hogg said: “We continue to see opportunities to invest in high-quality renewable energy assets in Brazil that are well-suited to our long-term investment strategy.
“This transaction will create a diversified and well-capitalised platform primed for further growth in the country’s power sector.”
When it comes to renewable energy platforms, listen closely to what Bruce Hogg has to say, he really knows the field and this deal will further cement CPP Investment's position in Brazil's renewable energy sector.
Below, in this episode of Talks at GS, filmed at the Builders + Innovators Summit in Asia (July, 2019), GLP Co-Founder and CEO Ming Mei discusses the business of logistics from real estate to fund management and how he incorporates the latest technology to scale the business globally.
Great discussion, take the time to watch this interview and you'll understand why CPP Investments and others invest heavily with GLP.
Mr. Mei is quite impressive. I also embedded another older talk (2017) where he discussed how technology is changing customers’ needs for logistics real estate, how logistics facilities are adapting, and the implication for the long-term demand growth of logistics real estate.
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