Canada Pension Plan Investment Board is focusing its asset allocation in China for the long-term as it seeks to allow for significant value creation in the country.
“CPPIB is a long-term investor in China, and we are well positioned to contribute to fostering a long-term oriented market environment that supports our partners, portfolio companies and ultimately benefits the CPP Fund, Mark Machin, chief executive of CPPIB, said in a statement.
CPPIB has around 4 percent of its C$328.2 billion ($258 billion; €216 billion) portfolio in China across private equity, real estate, credit and other strategies as of March 2017. The fund is looking to increase its allocation to China over the long run, Machin said in a media interview earlier this year.
The investor has backed China-focused managers such as FountainVest Partners, Hillhouse Capital, PAG, CDH Investments and Hony Capital, according to PEI data. CPPIB is also particularly big on e-commerce and logistics, it was an early investor in Alibaba and has backed the $4 billion series C funding of e-commerce platform Meituan-Dianping in October this year. In 2015 the fund also invested about $680 million in the common equity of Postal Savings Bank of China, one of the largest retail banks in that country.
CPPIB places heavy emphasis on the long-term case for investing in China and worked with Caixin Global on a study that refutes the perception that Chinese companies tend to be “short-termist and impatient compared with global peers”.
While China’s policy stability and continuity can make long-term planning easier, the country’s rapid economic development often requires that the government act swiftly and broadly, which can result in corporate short-termism.
Yet, around 80 percent of Chinese companies surveyed said they have long-term perspectives embedded into their corporate cultures. Meanwhile, more than 70 percent believe their long-term strategic plans are either moderately or well defined, formalised, and articulated.
Chinese companies are also demonstrating long-term perspectives via long haul road maps, remuneration packages and long-term valuation metrics.
“The findings of this survey show that corporations in China have long-term aspirations, though this mindset can be impacted by various performance pressures. For instance we found that while Chinese businesses were reasonably good at thinking long term, the capital markets generally are not, leading to a disconnect,” Machin said in a statement.
The research also revealed that China’s government policy and ongoing economic transformation into the new economy sets it apart from other markets. Seventy one percent of SOEs and 66 percent of non-SOEs say central-government policies heavily influence how they develop long-term strategies.
To encourage longer-term investing in China, the research suggested that investors restructure terms of mandates between asset owners and managers to provide more long-term incentives; actively engage long-term institutional investors with corporations to encourage long-term value creation, rather than quarterly results; and to partner with other like-minded investors to promote public awareness and a long-term mindset in the investment community.
CPPIB along with Hillhouse Capital engaged Caixin Global and Caixin Insight Group to survey more than 180 listed Chinese companies (both state-owned and none state-owned enterprises) in 28 industries, comprising a total market capitalisation of $2.41 trillion. Chinese regulators, asset managers, academics and other corporate executives were also interviewed for the study.