CPPIB eyes seven-fold rise in Asia exposure

Canada’s second largest pension plan may increase its allocation to Asian assets by as much as 700% over the next two decades, although the size and speed of the increase will depend on a number of factors.

“We have a long-term mandate so we have to have a long-term perspective,” said Mark Machin, president of the Canada Pension Plan Investment Board this week at the FT Asset Management Summit in Hong Kong. There is little doubt that “Asia will get bigger and a lot more important” over the next two decades, he added.

It’s plausible that CPPIB, which has C$183 billion ($177 billion) in AUM, could increase its exposure to Asia to C$150 billion from C$22 billion today, Machin tells AsianInvestor.

“There’s so much uncertainty. But based on long-term approximate assumptions, it’s possible,” he says. “Number one is how big our own fund is, and that depends on how well we invest the money, and what the inflows from pensioners are like. Second is the size of Asia as part of the world. And third is the importance of China and whether it becomes much more investible or not.”

The retirement fund has been interested in Asia for some time and has been building up the region in the past year or so, having added two business lines in Hong Kong late in 2012. China is high on its radar; as of January, CPPIB’s total quota under the country’s qualified foreign institutional investor (QFII) programme stood at $600 million.

On the debate of active versus passive investing – some C$90 billion of CPPIB’s money is passively invested – Machin says it is always seeking new active opportunities in private equity, real estate and infrastructure. However, if the right opportunities do not present themselves, it will simply put more money to work in public markets, allocating around 65% to equities and 35% to debt.

At the moment, CPPIB has C$15 billion invested in hedge funds and C$23 billion in private equity funds.

When asked if the pension would consider investing in greenfield infrastructure projects, Machin says it typically takes a more conservative approach, preferring brownfield. But “if the fund is paid for taking the risk”, it will invest in new projects.

On the subject of fees, Machin, who spent over two decades at Goldman Sachs, most recently as Asia head of investment banking, quipped that it’s “a sensitive topic after he had spent 20 years arguing for higher fees”.  

“You get what you pay for,” he told the audience. “So we look at all performance after fees, and we want to make sure we’re making better returns after fees than we could if we make passive investments.”