CPP Investment Board (CPPIB), which manages Canadian $328 billion (about $255 bn) of assets for Canada Pension Plan, believes that the Indian infrastructure sector presents a ‘massive opportunity’ for long-term investments. Speaking to mediapersons on his short visit to India, Mark Machin, president & CEO, said that he was looking forward to more opportunities to invest in the Indian infrastructure sector, especially in roads and renewables. He cited the deep experience of the organisation in the infrastructure sector in Canada and the long-term nature of their investments as key reasons for the high focus on infrastructure investments. CPPIB has been investing directly in natural resources, financial services, infrastructure and real estate because of its high interest in these segments and the limited, quality deals in the segment flowing through the several funds it invests in. He cited an investment in natural gas distribution in Spain as an example of the kind of projects they are happy to focus on—where the competition is less and they have the knowledge to better evaluate the challenges.
In India, CPPIB, which has so far invested Canadian $6.1 billion (about $4.7 bn), has interests in several companies, including L&T IDPL, Island Star Mall Developers (owner of Phoenix Mills), IndoSpace Core and Bharti Infratel, which are focused on infrastructure, realty, logistics parks and telecom assets. Mark expects much of the future investments in infrastructure and realty to flow through these ventures.
CPPIB typically buys low development risk, long-term yield assets of such ventures and frees up capital for new asset creation. This is also why CPPIB has stayed away from residential realty (unless in a mixed development), which it views more as a manufacturing business—where the product (house) is produced and sold.
The other segments Mark is particularly bullish on include financial services, healthcare and consumer goods & services, this even as CPPIB adopts a sector agnostic approach to investing. Kotak Mahindra Bank is an important investment for CPPIB and Mark expects to “work with Kotak for other opportunities” in the financial services segment, though he doesn’t rule out other investments in the sector. An area that CPPIB presently doesn’t find very appealing in India is the stressed assets space. The number and sizes of deals is a limiting factor for the fund manager.
On a macro perspective, Mark sees a pick-up in major world economies. He is particularly upbeat about improving prospects in the US, as well as in Canada. Over the longer-term, though he expects China and India to emerge as much larger and stronger engines of growth.
He believes India presents a very attractive long-term investment opportunity and, so, CPPIB is increasing its focus here, and may even strengthen its team of nine people presently stationed in the country. Finding the right partners, projects of scale and the getting the right valuation are the fund’s key challenges in deal closing.
The difficulty in resolving issues when things go wrong in India, due to the long time taken in the legal system is a key concern for the investment manager. But the biggest issue for CPPIB globally is the problem of high liquidity. “There is too much capital chasing too few things,” says Mark.