The rapid urbanisation and growth of the middle class in Southeast Asia and India are presenting significant opportunities for portfolio diversification, say top executives at Canadian pension funds CDPQ and OMERS.
Speaking at DealStreetAsia’s Asia PE-VC Summit 2021, CDPQ’s Leong Wai Leng and OMERS’ Prateek Maheshwari both noted increasing allocation to the region.
“What we’re trying to do is seek diversification, and if you look at our peers and ourselves, [we are] diversifying across asset classes, and across the region,” said Leong, managing director at CDPQ and regional head of Asia Pacific.
Maheshwari, OMERS head of Asia infrastructure, pointed to the region’s demographics-driven growth that will drive spending on urban infrastructure and the transition to greener energy.
“There is going to be a significant demand for infrastructure investments,” he said. With population growth and urbanisation, there will be “increased spend on infrastructure, whether on transport assets, or data [facilities].”
Additionally, as the emerging economies in the region develop, there will be a need for more private capital.
“Each country is going to follow its own trajectory in terms of private capital [flows], and the interplay of private capital with state-owned enterprises,” Maheshwari added. “There is definitely a desire to open up their economies to private capital, especially in the infrastructure sector.”
India is a particularly attractive market, Maheshwari said, given how the market has developed over the last decade.
“We see within the regulatory framework, the openness towards private capital that has evolved over the last 5,10 years; the vibrancy of the credit markets and the corporate sector; the prevalence of like-minded investors like CDPQ in the country, as well as the partnering options with local sponsors, presents a plethora of opportunities that tick a lot of boxes in terms of what we look at from an overall investment thesis,” he added.
For CDPQ, the key markets of interest in Southeast Asia are Indonesia and Singapore, Leong said.
“We find Indonesia to be quite interesting across many asset classes,” Leong said.
For Singapore, “it’s a location where there are a lot of platforms, so [in Singapore] we find that the deal flow is actually very attractive for us.”
There are also “pockets of opportunities” in the Philippines, and Vietnam, Leong added, despite the comparative lack of depth in the markets. “Having said that, if we find the right partner and the right asset, we will be very happy to take a look at it.”
Renewable energy in focus
A key investment theme for both funds is the transition towards renewable energy, the executives said.
“Renewables or the broader energy transition play is a global theme for us. We think that it’s going to pan out much more strongly in Asia. The existing asset base in Asia needs to be greenified to be put on a sustainable footing,” Maheswari said.
Earlier this year, OMERS invested in Azure Power Global, an independent solar power producer in India, in which CDPQ has a significant stake.
CDPQ also recently invested $2.7 billion in an offshore wind farm in Taiwan.
CDPQ has some C$36 billion in green assets and is targeting to hit C$54 billion in green assets by 2025. It recently announced that it was creating a C$10 billion “transition envelope” to invest in companies to help them lower their carbon emission.
In total, CDPQ has C$390 billion in assets under management. The bulk of its investments are in North America; about 12% is in the Asia Pacific.
CDPQ’s private equity investments account for about 18% of its total portfolio; more than three-quarters of its private equity portfolio are direct investments.
OMERS has C$114 billion in net assets. About 19% of the portfolio is in infrastructure, and 16% is in private equity assets. The Asia Pacific accounts for 10% of its portfolio.