CPPIB plays to pip other global investors as it seeks to grow SEA logistics portfolio

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Canada Pension Plan Investment Board (CPPIB), the region’s most active western pension investor, has set sights on growing its logistics portfolio in Southeast Asia and continue its investment momentum in the space in Korea, Japan and Australia, as an e-commerce boom fuels frenetic demand for such assets.

The key is to make a move and be in the under-served markets in Southeast Asia “before other institutional investors come in,” according to Jimmy Phua, Managing Director, Head of Real Estate Investment Asia at CPPIB.

The $277-billion CPPIB, which set up its presence in south-east Asia two to three years back, has been cultivating local partnerships to make its first tranche of investments in the logistics asset space in countries like Malaysia and Indonesia.

“We know that logistics is fashionable for many years now. These are countries that are in need of modern logistics and big players around the world like GLP or so on and so forth are not there,” Phua said at a panel session during the HKVCA Asia Private Equity Forum in Hong Kong on Wednesday.

“Either we will get it right or wrong but hopefully we will be there before other institutional investors come in,” Phua added.

With favourable demographics, disposable incomes and high smartphone penetration, Southeast Asia has been witnessing a fast-paced growth in e-commerce business leading to demand for modern logistics assets.

And, sector giants like Singapore-based GLP or pan-Asian logistics developer and operator ESR do not seem very active in markets like Indonesia, Malaysia or the Philippines.

Nevertheless, in late 2017 Alibaba founder Jack Ma had announced a regional logistics hub in Malaysia, the Digital Free Trade Zone (DFTZ) which included warehousing facility close to Kuala Lumpur’s international airport to be operated by national courier, POS Malaysia. The facility was meant to first start serving Alibaba-backed Southeast Asian e-commerce player Lazada.

Beyond SEA: Korea, Japan, China

“Another market that we are growing for the past two-three years is Korea, again in the logistics space,” Phua noted.

Last year, CPPIB partnered ESR and its Seoul-based subsidiary Kendall Square Asset Management to invest $500 million in a new investment vehicle to target modern logistics facilities in South Korea. The pension fund also partnered Kendall Square in 2015 to establish a $500-million vehicle to invest in institutional-grade, modern logistics real estate assets across South Korea.

South Korea’s logistics assets are expected to grow as the country’s e-commerce penetration rate is forecast to increase to more than 30 per cent by 2021 from the current 18 per cent.

“So we have been growing our logistics portfolio and we will continue to do that. At the moment , there are no big players — scalable and sizable ones in the logistics space in Korea. There are smaller players but not the likes of GLP. So, we would like to do that,” he added.

However, he added that Korea is not an easy country to invest and navigate if one is not familiar.

Meanwhile, in Japan, the pension fund has a multi-billion exposure in the modern logistics space, he added and pointed out that this year the pension fund hopes to deploy a “sizable amount in logistics space.”

Last month, CPPIB came on board as the largest investor in the $5.6-billion fund of GLP targeting Japan’s logistics real estate sector. This was the third venture that CPPIB came on board with GLP in Japan, Phua said.

However, in the office space, he noted that the pension fund may have missed the cycle. “We had a portfolio of offices in Japan with GE and GE withdrew that entire thing so we made some money. But now its too late to go there,” he noted.

Meanwhile in China, CPPIB has an ongoing partnership with ASX-listed Goodman Group and has allocated about $4-5 billion with the same partner in the logistics business. Last August, both committed another $1.75 billion to their China logistics partnership and plan to double the size of their mainland portfolio.

Further more, in markets like Australia, the pension fund has accumulated a portfolio of $5-6 billion over the past 10 years. Meanwhile, in the past two years, the pension fund has been focusing on selling a lot of its assets.

“I think it will also be a good year for us so we can take some money off the table and deploy it somewhere else,” Phua added.

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