Ontario Teachers' drive for Asia alpha sharpens focus on three regions
Ontario Teachers' Pension Plan is honing in on three of its four regional investment areas to help it generate alpha in the Asia Pacific, a top executive told AsianInvestor.
“I would say, overall, India, Australia and New Zealand are our regional focus areas (within APAC) although we do see opportunities in Japan and Korea as well,” Bruce Crane, executive managing director and head of Asia Pacific at Ontario Teachers’, told AsianInvestor.
Crane leads the investment activity and portfolio management in APAC for the pension fund.
The C$249.8 billion ($181 billion) Canadian fund’s teams invest in four asset classes in Asia: infrastructure, private equity, venture growth and real estate.
Its investments in Asia, accounting for close to 9% of total assets under management, are all in private markets, both direct and fund investments.
CREATING ALPHA
The institutional investor carves Asia into broadly four regions for investments: North Asia, which includes Japan, Korea and Greater China; India; Southeast Asia (SG, Malaysia, Indonesia, Philippines, Thailand); and Australia and New Zealand.
While it is very comfortable investing in markets like Australia and New Zealand -- and it has invested in these markets for a long time -- the real driver of being in Asia is due to the potential the fund sees in markets like India, for example, with its expected higher GDP growth and huge opportunity set, Crane said.
“Having the ability to invest in different sectors in different countries at different times is important,” said Crane. “Having the capabilities to do so is important. That’s how you create alpha.”
In Australia and New Zealand, Ontario Teachers’ focuses on private equity, infrastructure, natural resources and real estate, while in India, the focus is private equity, infrastructure and venture growth.
“We also see an interesting set of opportunities in Southeast Asia, but it’s not a region we are spending a lot of time in right now," he added.
“Given where we are in our capital deployment cycle, we feel our focus is better in the other three regions: India, Australia/New Zealand and North Asia, with Japan and Korea being our main markets in that part of the region,” said Crane.
“Japan is probably the most interesting market for us right now in North Asia.”
In North Asia, Ontario Teachers’ current activity is mainly private equity.
It has some infrastructure exposure through a large investment platform called Equis Development Ltd (EDL), a developer and operator of renewable energy and waste infrastructure.
EDL is actively involved in developing renewable energy and biomass projects across Japan and South Korea, which supports Ontario Teachers’ focus on sustainable, development-stage assets in the region.
“We see North Asia as more of a development opportunity for infrastructure versus an operating opportunity,” said Crane.
The pension fund also has a large venture growth portfolio in China, although it is not something “we are looking to grow for now,” he added.
TEAM BUILDOUT, DEALMAKING
Crane launched the Singapore office of the pension fund in 2020; that was when it added an infrastructure team in Asia for the first time.
Ontario Teachers’ today has about 50 investment partners in the region split between Hong Kong, Mumbai and Singapore.
It also has about 25 functional (non-investment) partners, most of which are in Singapore and Hong Kong, and one person in Mumbai.
“On the infrastructure side, we have been a direct investor first for approximately 25 years,” he said.
“Today, we are still happy being direct, but we have seen the benefit of using some fund investments and we have done that in Asia.
“For instance, we are a limited partner in KKR's Asia infra fund and are very happy with that partnership.”
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CO-UNDERWRITING
On the private equity side, it started out as a fund investor but with the ambition to become a direct investor.
“We’ve built up a direct team, so our partnership with funds has morphed from a passive LP to one where we are more strategic. We consider the co-underwriting opportunities that our partnerships bring,” said Crane.
It uses the partnership to go after very specific opportunities, utilising its in-house capabilities to conduct due diligence.
“We look for calls from GPs where we are a critical part of the consortium that is going to acquire that asset. That could mean acquiring up to 30% of the assets or more, for instance,” he said.
Examples of direct investments with value creation angles alongside partners include investments in South Korea’s leading fried chicken brand, BHC Group, alongside MBK Partners, and in the Singapore-based Princeton Digital Group with Warburg Pincus.
Crane is excited about what 2025 could bring for the institutional investor.
“We have about C$22 billion ($15.6 billion) of exposure across those four asset classes and regions.
“We like where we are from an exposure perspective, and we have a good team. We are well-positioned to execute on the drivers and opportunities we see ahead of us,” he said.