Not content simply to do deals outside of North America, some of the largest Canadian limited partners have in the past year put down roots in Europe and Asia, focusing much of their efforts on emerging markets.
The most important reason these LPs are going abroad is that overseeing existing foreign assets and expanding nondomestic investments can more easily be done with boots on the ground. In London, where CPP Investment Board, the investment entity of the $116 billion Canada Pension Plan, is developing a larger presence, the LP intends to have seven people in the office by the end of this month and will likely expand further.
Almost all the CPP IB’s private equity portfolio is located outside of Canada (see chart), with a huge amount of capital invested in the United Kingdom and continental Europe. That includes $8.9 billion of funded commitments to private equity, infrastructure and real estate partnerships as well as substantial public market holdings in Europe that amount to more than twice that sum. “The London office gives us the ability to do three things in Europe: identify new investment opportunities and partners; be closer to our existing partners to better service those relationships; and be closer to the substantial existing assets that we have in the U.K. and Europe and their management,” said Mark Wiseman, who leads the CPP IB’s private equity and direct investment activities.
Increasingly, Canadian pension funds are turning their attention beyond Europe and focusing on Asia and other emerging markets. In the past year, OMERS has significantly increased its investments in these areas, said Paul Renaud, president and CEO of
Because CCP IB had few commitments to emerging markets before fiscal year 2008 and had almost no exposure in Asia, it has recently made a concerted effort to expand the scope of its activity in greater China, Korea and Japan. The LP opened a Hong Kong office earlier this year and committed to several new funds, including $350 million to KKR Asian Fund LP; $350 million to TPG Asia Fund V; and $50 million to CITIC Capital Fund. “The Hong Kong office puts us on the map,” Wiseman said. “India and China will be a much larger percentage of the global markets than they are today. We have to be able to take advantage of the diversification that global markets offer.”
In all, CCP IB pledged $950 million to Asia-focused funds in fiscal year 2008 (ended March 2008), thus growing its emerging markets private equity commitments to more than $1 billion, versus just $115 million in fiscal 2007. In addition to its commitments, CPP IB has established itself in Asia by co-sponsoring, along with Ontario Teachers’, a new private equity fund. That fund targets businesses in China seeking earnings growth and expansion and focuses on deals of about $50 million each. Each LP committed $200 million to the new venture, named
The same two LPs teamed up previously in Istanbul, the largest city in Turkey, which literally straddles the continents of Europe and Asia. In 2007, they established
Despite its obvious interest in China and Turkey, London is Ontario Teachers’ only office outside North America at the moment. The LP also opened a New York office earlier this year and hired Rakesh Gangwal, a former top executive at Worldspan US Airways, to be the first executive to join
Ontario Teachers’ opened the London office not just to be close to its European investments but also to be near Asia and Africa, said Carol Dunsmore a spokesperson for the LP. For now, the London office is the only geographic expansion on Ontario Teachers’ radar, she said.
In the coming year, the natural progression of CPP IB’s investment program will lead it further afield into the emerging markets of India and Latin America. The pension fund already has experience in Chile, having participated in the buyout of HQI Transelec Chile S.A., Chile’s largest electricity transmission company. “We will spend time in Brazil, which is the largest economy in the region. We do have infrastructure investments in Chile, which is a small economy, but it is relatively attractive,” Wiseman said.