CPPIB grabs pole position for PE investment

Invests $1.5 billion across three deals this year

In seven years, Canada Pension Plan Investment Board (CPPIB) has transformed itself from a passive investor in India to the largest private equity (PE) investor. It has invested over $1.5 billion in the past six months.

It is followed by Japanese firm SoftBank and US-based PE giant Warburg Pincus which invested $1.4 and $1.1 billion, respectively, in this period. The Canadian fund with $215 billion portfolio seems to set for a lead for longer time in the country, as it plans to raise its exposure to emerging markets to 15 per cent of its portfolio in the next 3 to 5 years from 10 per cent now. “They started in India as a limited partner (LP) investor but soon they have increased their exposure with investing in public markets, real estate as well as private equity opportunities,” said Renuka Ramnath, managing director  and  chief executive officer, Multiples Alternate Assets.  Ramnath is credited for bringing in CPPIB to India when she was raising her maiden fund for Multiples that she founded after parting ways with ICICI Venture. Then CPPIB had invested less than $100 million in Renuka’s maiden fund of about $400 million.

This year in January, it had acquired 48 per cent stake in offshore software research and development services firm GlobalLogic from Apax Partners for $720 million. Then followed up in March by partnering with KKR & Co to buy a 10.3 per cent stake in Bharti Infratel for $952 million. CPPIB contributed $317 million to this deal. Soon after, in May, it had formed a joint venture (JV) with IndoSpace to acquire modern logistics facilities. CPPIB has made initial commitment of $500 million for the JV that is planning to acquire 13 well-located industrial and logistics park with 14 million square feet space, to start with.

“They are very thorough in their assessments. Amount of money they are investing now, it is very clear that they are convinced with India’s long-term potential to give good return,” she says. The pension fund also made a $114 million public market investment in Kotak Mahindra Bank in March this year which would take its total investment to over $1.6 billion. Last year, it had also made a $250 million investment in a unit of Phoenix Mills that owns and runs premium malls across the country.

“Long-term funds such as pension plans and university endowments still have a majority of their investments in OECD (Organisation for Economic Co-operation and Development) countries. But they are starting to reallocate assets to newer markets,” said Vikram Gandhi, founder of Delhi-based VSG Capital Advisors, who is also a senior advisor to CPPIB for its investments in India. OECD is a global economic organisation of 34 countries founded in 1961 to stimulate world trade. These are largely developed markets such as the US and Europe, where the pace of economic growth is slowing down.

While sovereign funds have more often taken the direct route for their investments in India, pension funds or university endowment funds usually preferred becoming limited partners in PE funds to make investments in India.

CPPIB made its first direct investment in India in 2014 when it partnered with Oman’s State General Reserve Fund (SGRF) to invest Rs 2,000 crore in engineering major Larsen & Toubro’s (L&T) infrastructure development arm L&T Infrastructure Development Projects Limited (L&T IDPL). Since then it has not looked back.

“So the trend is not that they are saying ‘no’ to investing through PE funds. The trend is that they are looking at direct investment in India and such other markets as an additional avenue to get more exposure to emerging markets,” said Gandhi speaking to this newspaper earlier. CPPIB continues to be a LP with other domestic funds including India Value Fund which has been re-branded as True North (Managers). The fund did significant analysis under Gandhi before taking the India plunge. Given its huge size, it also makes sense that the firm focuses more on infrastructure and real estate .

“The investment horizon of a pension fund is indeed longer than that of a typical PE fund (with five-six year exit requirements),” says Arun Natarajan, founder, Venture Intelligence. 

“This makes pension funds more suitable for mature enterprises seeking large amounts of capital - including infrastructure companies,” he says.