Concerns around inflation have shifted to managing a macroeconomic climate characterised by high interest rates for public pension and sovereign wealth funds (SWFs), according to a recent study.
As a result, funds have moved towards infrastructure investments and public equities, decreasing their reliance on government bonds and real estate, the Global Public Pensions 2023 study said.
The study by independent think tank Official Monetary and Financial Institutions Forum (OMFIF) also noted a trend towards proactive strategies that include an increased investment in emerging markets, with a clear preference for India over China.
INDIA OVER CHINA
While some public pensions and SWFs are willing to venture into riskier asset classes, there appears to be a lesser inclination to explore riskier regions. Within the emerging market space, a clear preference for India came through in the report's findings.
"Nearly 40% of surveyed funds selected India as the most attractive emerging market,” OMFIF’s research team observed.
"India’s appeal seems linked to its relatively strong growth rates and demographics, and it is starting to become more open to foreign investors. The country’s government bonds will be added to the JPMorgan Government Bond Index-Emerging Markets benchmark in June 2024," the OMFIF researchers noted.
Of 100 funds analysed, there was an even split in terms of assets owned between the regions – 33% in North America, 32% in Europe and the Middle East and 32% in Asia Pacific region, according to the OMFIF researchers.
Furthermore, they pointed out that India and Vietnam "are well-positioned to benefit from the diversification of global supply chains."
In stark contrast, China is facing increasing investor reluctance.
"None of the surveyed funds have a positive outlook for the Chinese economy, and none expect higher relative returns on Chinese assets. In addition, 73% of survey respondents listed regulation and geopolitics as barriers to investing in China,” they said.
These exact sentiments were expressed by the Alberta Investment Management Corporation (AIMCo) when they opened their Singapore office in September this year.
“India has captured our interest and been a focus for quite some time, particularly in terms of infrastructure investments,” said Marlene Puffer, CIO of the $121 billion Canadian pension fund.
When it comes to China, Puffer said that AIMCo is actively exploring some strategies but were cautious about the complicated landscape.
Ashish Goyal, executive vice president and head of Asia-Pacific of the Ontario Municipal Employees Retirement System (OMERS), has been an outspoken advocate of investing in India for some time, particularly as companies look to diversify production and supply chains away from China.
At an event in September, Goyal went as far as saying that investors might be underestimating the potential for the country’s significant economic growth to continue over multiple decades.
India's infrastructure market holds great promise for both pensions and SWFs, driven by an expanding, urbanising population and the government's commitment to improving living standards.
The National Infrastructure Pipeline revealed plans to invest over $200 billion annually in infrastructure development. However, there remains significant scope for improvement in the efficiency of infrastructure project development, an issue that Prime Minister Narendra Modi’s Gati Shakti initiative, launched in 2021, intends to address.
The program seeks to synchronise different ministries and states, provide a digital information-sharing platform and a governance framework for coordinated planning of large infrastructure projects.
An innovative feature of the Gati Shakti initiative is the development of a digital master planning facility that combines nearly 900 layers of information on a Geographical Information System platform. This enables investors to identify infrastructure service gaps and opportunities for creating new assets.
"Improved coordination among stakeholders and enhanced transparency in project execution may further boost the confidence of global investors in increasing allocations to India," said Saurabh Suneja, director of strategic initiatives and policy advisory at India’s National Investment and Infrastructure Fund.
The $182 billion Ontario Teachers’ Pension Plan recently opened an office in Mumbai “to unlock the many investment and partnership opportunities in India,” according to its latest annual report highlighting investments in infrastructure, solar energy and healthcare in the country.
Other foreign state-owned investors with operations in India include Singapore's Temasek and GIC, and Malaysia's Khazanah and Canada's Caisse de Depot et Placement du Quebec (CDPQ).
GIC leads in funding India’s infrastructure but is closely followed by the likes of CPP Investments, CDPQ, the Abu Dhabi Investment Authority, Dubai World, PSP Investments, the Ontario Teachers' and Temasek.
CPP Invesments, the largest Canadian pension fund with $430 billion in AUM, has been a bullish investor in India over the last ten years and has made investments across asset classes including in real estate, infrastructure, public and private equities, funds and co-investments, and credit.
India, and particularly Indian tech, is a standout in terms of long-term opportunities, according to Agus Tandiono, head of Asia Pacific and active equities in Asia at CPP Investments.
“India has a young population, many of them growing into the middle class. Internet and mobile penetration have been growing significantly, and CPPIB backs companies with innovative business models that build on that new infrastructure,” Tandiono told AsianInvestor recently.
“We also see opportunities in the energy transition space. These include renewable energy providers as well as electric vehicle batteries and energy storage systems,” he said.