Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ) is bullish on investment prospects across various sectors in the Southeast Asia region, a top executive told DealStreetAsia.
CDPQ, which set up its Singapore office back in 2014, has just initiated an in-depth strategic review of this region in the last 12-18 months. However, CDPQ Managing Director, Head of Asia Pacific Leong Wai Leng maintains that the firm has always been open to investing in Southeast Asia.
While a majority of CDPQ allocations are earmarked for developed markets, it typically sets aside 13.6% of the investments to markets such as China, India and Latin American countries. The Southeast Asia region accounts for a minority investment allocation, she said.
In SE Asia, CDPQ has been primarily investing in Indonesia’s government bonds and infrastructure projects. Recently in March 2021, the firm announced a long-term partnership with a UAE-based logistics company and Indonesia’s conglomerate Maspion Group to build a $1.2-billion port and logistics park in Gresik, East Java.
Through its real estate arm Ivanhoe Cambridge, which backs LOGOS Group, CDPQ recently formed two joint ventures with Canada Pension Plan Investment Board (CPPIB) to develop logistics facilities in Jakarta. CPPIB is said to be investing $200 million in the joint venture.
For the broader Southeast Asia investment strategy, CDPQ will continue to look at both illiquid and liquid asset allocation strategies. While the liquid asset strategy will be primarily focused on investments in government bonds in Indonesia and Malaysia, its illiquid asset allocation part will be towards infrastructure projects as well as private equity. The pension fund is looking at “interesting PE deals” in Singapore itself.
CDPQ, which is already an active investor (limited partner) in private equity funds, may also look at increasing its exposure to co-investment opportunities. “Because we want to be able to contribute on important governance matters, we want to take material direct investments (for our portfolio companies),” Leong said.
The pension fund manager, which has over CA$64 billion assets in its PE portfolio, makes equity investments in the region of CA$200 million to CA$1 billion. The firm’s investments are mainly in the technology, healthcare and financial services sectors around the world.
Currently, CDPQ has assets under management totaling CA$365 billion with 32% allocated to public equity and 30% to fixed income instruments. The rest is allocated to illiquid assets including private equity at 17.6%, real estate at less than 10% and infrastructure up to 9%.
Going forward, CDPQ is targeting to increase its illiquid assets allocation to 45% by 2024. “Because we look at the risk vs return that can meet our stakeholders’ needs, and as a global investment group managing funds for public retirement and insurance plans for more than 6 million Quebecers, we continue to identify opportunities that meet the long-term sustainable returns we require,” Leong said.
In the last five years, CDPQ has recorded a 7.8% annual return on investments, while the return in the last 10 years was 8.6% per year. Each of CDPQ’s investments must be impactful and follow the ESG principles such as carbon neutrality, diversity, inclusivity and good corporate governance, she continued.
Tech sector focus
Going forward, CDPQ is actively looking at technology investments in Southeast Asia and is planning to increase its exposure to this vertical, Leong said. One of CDPQ’s previous tech investments, conducted through a private equity firm, in the region is the Philippines’ broadband service provider Converge ICT.
In September 2019, Converge ICT announced a $250-million minority stake equity investment from Warburg Pincus. However, Leong declined to confirm if CDPQ’s exposure in Converge ICT was through Warburg Pincus.
CDPQ subsequently made a partial exit from Converge ICT during the latter’s $600-million IPO in late 2020. The firm has declined to divulge its remaining ownership in Converge ICT.
With around CA$55-billion worth of technology investments in its portfolio, CDPQ claims to be a major player in the sector. So far, CDPQ has developed an investment continuum from early-stage VC funds to direct Series C-D investing. It has also invested in growth-stage startups, as well as pre-IPO and post-IPO companies.