The CPPIB takes an interest in Asia amid geopolitical turmoil and declining Chinese investment controversy

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The Canada Pension Plan Investment Board’s US $ 800 million investment in Indian group Flipkart this week is more than a bet on the online grocery delivery company ahead of an IPO planned. It’s also a sort of statement that the investment manager of Canada’s National Pension Plan is still enthusiastic and active in Asia despite the recent geopolitical turmoil and controversies, especially over his investments in China.

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The CPPIB’s allocation to Asia rose to over a quarter of net assets last year, from less than 18% in 2017, and “China and India are key” for the pension manager’s plan “to allocate up to one-third of the fund to emerging markets by 2025,” said Agus Tandiono, managing director and head of fundamental equities in Asia for CPPIB.

But some questioned the strategy at both country and company level. Relations between the Canadian and Chinese governments have become icy since Meng Wanzhou’s arrest in Vancouver in 2018 at the behest of the United States, exacerbated by the subsequent detention of two Canadians in what many see as retaliatory action.

At the same time, the investments in China that once gave the Agency bragging rights have lost their luster.

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A timely investment in Chinese e-commerce company Alibaba paid off in 2014, at least on paper, when the company went public with a value of $ 25 billion. But founder Jack Ma’s fortunes took a hit recently after public comments he made appeared to be aimed at Chinese regulators. A planned $ 35 billion initial public offering for Ant – a fintech company in which Alibaba and its major investors have a stake – was pulled last year. It could still go ahead, but analysts pegged the value at around 60% lower than expected. Chinese regulators are also probing Alibaba as part of a broader crackdown on tech monopolies in that country.

Alibaba founder Jack Ma.
Alibaba founder Jack Ma. Photo by Elaine Thompson-Pool / Getty Images files

CPPIB’s investments in China alone accounted for about 11 percent of the portfolio and were on track to increase to 20 percent by 2025, according to a transcript of a parliamentary committee hearing last June.

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Senior executives at the Canadian pension fund were faced with hours of questions from committee members, some of them pointed out about its investments in China. Conservative MP Michael Cooper, then a member of the Standing Committee on Finance, asked agency executives if they were concerned about arbitrary regulatory or government decisions on corporate structure affecting their investments in China, including including Alibaba. He also asked about Ant and his difficulties in making a US acquisition due to national security concerns, and noted that other large US-based pensions had recently halted all investments in China.

CPPIB executives defended continued investment in China, stressing the importance of this country to the fund’s geographic diversification and the potential for returns in developing markets with a growing urban middle class.

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A little over a month later, however, the Canadian pension giant took an important step to strengthen its investment capacity in India. Anuj Girotra, who had spent 12 years leading the private markets business of Capital Group in India, was hired to lead the Office’s efforts in investing in equities and about public companies about to there. become public. While other executives on the team are based in Hong Kong, Girotra is based in Mumbai.

A Flipkart office in Bangalore, India.
A Flipkart office in Bangalore, India. Photo by Abhishek N. Chinnappa / Reuters files

Sources familiar with the CPPIB’s strategy say his hiring helped lay the groundwork for investing in Flipkart, a move big enough to dispel any notion of pulling out of the wider region, but which may also signal a evolution of their strategy.

“Asia is a diverse region with many different markets,” Tandiono told the Financial Post in an email. “A field presence and knowledgeable partners allow us to identify and seek out good investment opportunities. “

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With a major North American player like Walmart – which has prepared to battle Amazon for the global e-commerce market share – on board as the majority owner of Flipkart, the latest investment in this area has an extra layer of reinsurance for CPPiB.

The US $ 3.6 billion funding round was led by CPPIB, Walmart, SoftBank and GIC, and gives the online shopping and grocery delivery company more than US $ 37 billion in value. U.S. dollars.

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The investment group also features familiar names from past CPPIB fundraising deals around the world. For example, the Canadian pension manager entered into a joint venture with GIC in 2018 to acquire a premier office building in Seoul for US $ 380 million. Japan’s SoftBank, meanwhile, was reportedly set to sell its majority stake in renewable energy firm SB Energy to the Board for more than $ 400 million, but that deal was canceled in the spring.

“We have already worked with several of the investors in the Flipkart transaction, across geographies and transactions,” Tandiono said.

“The partnership has been an important part of our global strategy. “

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