It took almost five years and investment of $2 billion (₹12,800 crore) for the Canada Pension Plan Investment Board to set up a base in Mumbai. Though owned by the government, the fund house operates as a private entity managing fresh inflow of about C$5 billion a year from 1.9 crore employees and retirees in Canada. CPPI has delivered annual returns of 8 per cent in the last 10 years.
“It may sound low in India, but in the Canadian context it translates into real returns of 6.2 per cent after adjusting for inflation,” says Mark D Wiseman, President & CEO, CPP Investment Board.
Where does India figure in your overall emerging market sphere?
India will definitely get bigger in our investment in emerging markets. According to latest estimates, India is expected to contribute 5 per cent of global GDP by 2040. Incidentally, I do not use the term emerging markets any more as most of these countries have emerged.
India has already grown past the Canadian economy. Interestingly, growth markets are not connected to each other as they use to be. What is happening in India in terms of growth or currency performance compared to other countries in BRICS (Brazil, Russia, India, China and South Africa) is different. What is happening in these countries has no correlation with India. We need to understand each of these markets specifically before making investment decisions.
Do you have any specific investment target for India?
No specific target for India as such, but we are going to increase the investment base here substantially. Today, we have invested about US$2 billion and it accounts for about 1 per cent of our overall portfolio of C$270 billion. Let us assume that we want to double India share in six years. It means an additional investment of C$2 billion. But at the same time remember that our pie is also growing. In the next six years our portfolio will reach C$300 billion. So, we are talking about US $6 billion of additional investment in 6-8 years in India.
What is your view on policy reforms in India?
I think the Indian government is continuing reforms in the right direction and will continue to attract foreign investment. But a lot more needs to be done. Though I do not want to get into specifics on what the government should do, I would like to say there is lots of long-term capital available. Institutional investors today have the choice to invest in Indiana or India. It all depends on where they are going to make the best net risk adjusted returns.
We have no compulsion to allocate funds between developed and developing markets. We will be weighing an infrastructure project in India for investment against that of in Australia, US and Brazil and see where we can make the best return. Governments around the world should be cognizant about this fact as they set the policies.
Are start-ups on your investment radar?
We will not invest directly in start-ups. We would prefer companies looking for scale up capital. Even in that situation we would like to partner with .
For us, even if we make 10 times the money by investing $5 million in a start-up, it is not going to move a needle on our portfolio.
In 2011, we made a $300 million investment in Alibaba by partnering with another investor and doubled our investment the subsequent year. In 2014, when the company went for IPO we bought in more shares. It has been an unimaginably successful investment.
What should governments do to attract long-term funds?
There are 17 large fund houses around the world seeking long-term opportunities. Governments need to address three things. First, we need large-scale projects. For us, to go for investing in a hospital or one small project doesn’t make sense. We need a project size of minimum $500 million to $1 billion.
Second comes the risk profile of the project. We are investing in infrastructure as they can provide long-term stable returns. Today, lot of projects invested by institutional investors are high risk. Once a road project is completed, we do not know how many vehicles will ply on it.
We are much happier to pay a premium for assets that are completely built and de-risked. In fact, we paid a premium for a project in Canada with a 99-year concession almost 10 years after it was built.
Third, we need a structured and predictable regulatory regime throughout the concession period of the project.