May 30, 2017:
Toronto-based Canada Pension Plan Investment Board (CPPIB), which opened its India office in 2015, has quickly scaled up its investments since then, figures from its annual report show.
The pension fund had investments of around Rs13,440 crore in the country by March 2016, and pumped in Rs9,120 crore more in the next year to take its total India exposure to Rs22,560 crore by 31 March 2017.
Canada’s largest pension fund has been investing in India since 2010 and made its first active investment in the country through a C$100 million commitment to Multiples Private Equity Fund in that year. (1 CAD=Rs48)
Most recently, CPPIB joined hands with Everstone Group’s industrial and logistics real estate development platform, IndoSpace, to form a joint venture named IndoSpace Core to acquire and develop modern logistics facilities in India. The Canadian pension fund will initially commit around $500 million and own a significant stake in the joint venture.
It has also formed a strategic investment platform with The Phoenix Mills Ltd (PML) to develop, own and operate retail-led mixed-use developments across India. The pension fund will initially own 30% in the platform, known as Island Star Mall Developers Pvt. Ltd, a PML subsidiary, which owns Phoenix MarketCity Bangalore, for about C$149 million. CPPIB’s total commitment to the platform is around C$330 million, which will increase CPPIB’s stake in the platform up to 49%.
In an interview published in Mint on 9 January, Mark Machin, who worked as CPPIB’s first president for Asia and was named president and chief executive of the pension fund a year ago, said India had the best profile as an investment destination in the world.
“There are three things that are discussed from time to time: the stability and the effectiveness of the government to effect change, the second thing is the oil price spike which is a real challenge for India and third thing is high interest rates. But right now, we are in a good place and that is why a lot of money is looking at India,” he said, adding that the pension fund’s emerging markets allocation is expected to grow from 15% to around 20% by 2030. It is looking to ramp up its exposure to emerging markets, in particular India and China.
Among its other bets, CPPIB bought an additional 1.5% stake in Kotak Mahindra Bank Ltd along with peer Caisse de depot et placement du Quebec (CDPQ) for $352 million in March this year. To date, CPPIB has invested a total of C$1.2 billion in the bank, representing a 6.3% stake.
The same month, CPPIB also bought 3.3% in telecom tower company Bharti Infratel Ltd for $300 million, as part of the purchase of a 10.3% stake alongside funds advised by PE firm KKR & Co. LP, from Bharti Airtel Ltd.
In January, CPPIB agreed to buy around 48% US-based digital product development services firm GlobalLogic Inc., from private equity fund Apax Partners LLP.
Meanwhile, the CPP Fund, which houses investments for CPPIB, saw an increase of about 13.5% in its net assets to C$316.7 billion as of 31 March, 2017 from C$278.9 billion at the end of fiscal 2016, according to a separate statement.
The C$37.8 billion increase in assets for the year consisted of C$33.5 billion in net income after all CPPIB-related costs and C$4.3 billion in net Canada Pension Plan (CPP) contributions. The portfolio delivered a gross investment return of 12.2% for fiscal 2017, or 11.8% net of all costs.
“This was a strong year for the CPP Fund as we achieved one of the largest yearly increases in assets since the inception of CPPIB,” said Machin in a media release.
“As always, we continue to focus on longer-term performance. Year-by-year results will swing, but it is noteworthy that our 11.8% five-year return mirrors our annual return. We believe this is a strong indicator of our ability to generate steady, sustainable returns for generations of beneficiaries to come,” he added.
To generate the C$33.5 billion of net income from operations after all costs, CPPIB incurred total costs of C$2,834 million for fiscal 2017, compared to C$2,643 million in total costs for the previous year.
CPPIB’s total costs for fiscal 2017 consisted of C$923 million of operating expenses; C$987 million in management fees and C$477 million in performance fees paid to external managers; and C$447 million of transaction costs.
This fiscal year reflected a decline in the operating expense ratio for the second year in a row, as well as a slowdown in the growth of CPPIB’s operating expenses, the company said. In fiscal 2017, CPPIB completed 182 global transactions through four investment departments. Nineteen of those investments were more than C$500 million.
“The composition of our highly diversified long-term portfolio continues to position us well, allowing us to take advantage of the strong performance of global stock markets this year, amid significant global geopolitical developments,” said Machin, adding that the diverse investment programs of the group generated strong earnings, while fixed income investments remained relatively flat.
In the 10-year period up to and including fiscal 2017, CPPIB has now contributed C$146.1 billion in cumulative net income to the Fund after all CPPIB costs. Since CPPIB’s inception in 1999, it has contributed C$194.1 billion.
On the other side, for the five-year period, the net nominal return was 11.8%, contributing C$129.6 billion in cumulative net income to the Fund after all CPPIB costs. While Canadian assets represented 16.5% of the portfolio, and totalled C$52.2 billion, assets outside of Canada represented 83.5% of the portfolio, and totalled C$264.7 billion.