This week in asset owner history: CDPQ seeks local pension partners for India infrastructure
India has always been a ripe field for infrastructure projects and in 2018, the Canadian pension plan was on the lookout for regional pension partners to help them invest in long-term infrastructure projects.
The focus was particularly strong on infrastructure-starved India.
On October 24, 2018, Caisse de dépôt et placement du Québec (CDPQ) told AsianInvestor about its plans to deepen its exposure to infrastructure assets in key Asian markets through co-investments with local institutions.
Infrastructure in India was, and continues to be, a particularly strong focus of the Canadian pension plan, and the region was reportedly in need of about $4.5 trillion of investment over a 25 year-period to build up its roads, airports, ports, rail and power networks as well as other urban and rural infrastructure, according to the government’s 2017-2018 Economic Survey.
“One of the roles CDPQ plays is partnering with local pension funds to get them to invest alongside us in infrastructure projects,” Anita George, an executive vice-president who at the time led CDPQ’s New Delhi office told AsianInvestor in 2018.
Despite infrastructure assets being well suited to the needs of long-term investors — and around $1 trillion sitting in the Indian pension system that could potentially be funnelled into infrastructure development — pension funds in the region were prohibited by the government from investing in infrastructure projects directly.
CDPQ, nevertheless, held a series of conversations with government officials in India and George affirmed that there appeared to be strong interest in understanding how pension funds could invest in infrastructure. However, it wasn’t something they had systematically considered.
“They invited us to give a presentation on how Canadian pension funds have been investing in infra and how India could transform its pension system to also do the same,” she said.
Despite promising conversations, George emphasised that the communication was still at the level of simply understanding the Canadian experience of investing in infra projects.
INDIA NOW
For sovereign investors like CDPQ seeking opportunities in India — infrastructure has been a primary target with more than $19.4 billion allocated to the asset class by these investors since 2016.
As of 2022, GIC is the leading state investor into India’s infrastructure and has contributed 23% of the total foreign capital, followed by CPP Investments with 15%, CDPQ with 10%, the Abu Dhabi Investment Authority at 8%, Dubai World with 8%, PSP Investments at 6%, and Temasek and the Ontario Teacher’s both contributing 5% each, according to data from Global SWF.
CDPQ, which has grown its portfolio to $288.4 billion (C$392 billion) in assets under management, is the fourth biggest state investor into India’s infrastructure with more than $7 billion invested in the space.
These assets include the Shree Jagannath Expressway in Odisha state, Maple Highways (operator of Highways Concession One), TVS Logistics, and renewables-focused power producers Apraava Energy (formerly CLP India) and Azure Power.
The Canadian pension plan now has Saurabh Agarwal at its helm as its managing director overseeing its operations in the country, following the resignation of Anita George in 2021.
While CDPQ has been successful in partnering with India’s central and state governments on many of these infrastructure projects — India’s pension sector remains quite absent from the scene.
The mandate has changed slightly, with India’s Ministry of Finance passing legislation in March 2021 to allow non-government provident funds, superannuation, and gratuity funds to invest up to 5% into alternative asset funds. However, India’s pension sector is still prohibited from making direct investments in the space.
When it comes to investing in alternate assets like government-led infrastructure InvITs — the investment from local pension funds still falls well below the mandated limit of 5% of their portfolio and domestic pension funds continue to be skewed towards government securities, with around 50% of their investments being in this category.
There have been calls by financial experts in the region for the government to raise its 5% mandate, who view domestic pension funds as the key for India to become self-reliant in long term infrastructure financing.