CPPIB’s Kim on private equity in Asia: ‘Finding the right partner is crucial’

The pension’s head of Asia-Pacific, Suyi Kim, has driven a decade of growth for the fund and she’s just getting started.

Suyi Kim is known around Hong Kong – and indeed the whole Asia-Pacific region – for her brisk authority and confidence, cutting mega-deals with the largest pan-Asia firms. It comes as no surprise, then, that Kim is driving Canada’s largest pension through the region’s social and technological changes.

The Canada Pension Plan Investment Board’s managing director and head of Asia-Pacific is focused not just on the rapidly changing business landscape but also the difficulties of building an investment firm in the region.

“One of the challenges of building a business here is talent,” she tells Private Equity International in her office atop one of Hong Kong’s luxury retail malls.

“You can’t build investment firms if you don’t have the right talent. And to be able to cover the Asian market, you need to have talent that can not only speak Chinese, Japanese, Korean, but also have their local network to source the right opportunities.”

Women still make up a relatively small number of senior positions at private equity firms, Kim laments. She recalls an incident while working at Carlyle Korea more than a decade ago when she was mistaken for a secretary. “Secretaries don’t need to work this late,” a cleaning lady told Kim one evening. Bemused rather than insulted, Kim explains all the other female staff in the office at the time were secretaries. Nor was that an isolated incident when she began her private equity career in the early 2000s.

Today Kim is known as instrumental in building CPPIB’s private equity business in Asia. She established the fund’s first international office in Hong Kong in 2008 and has overseen the private equity business in the region – from the only person in the office and no portfolio C$7.7 billion ($6.1 billion; €5 billion) of committed capital in Asia by 2015. With outposts in Mumbai and Sydney, she now leads a staff of 105 and manages about C$80 billion across Asia.

“We still have a very small number of senior female professionals in private equity. It’s an industry that is still male-dominated. We need to be more active in building awareness around having more talented female professionals,” Kim says.

“We’re focused on this at CPPIB,” she notes, adding that she herself is a big proponent of greater gender diversity. “We’re hoping that we have more people coming in at the junior level but it’s also very important to develop and move them up to more senior positions. You see a lot of attrition as people move up because it’s challenging to travel often, be on the go all the time, especially as they start raising their families.”

Kim’s day is broken into 30-minute slots, starting with meetings at 7.30 am to conference calls with Toronto until late into the evening. When we meet one morning in December, Kim has just cancelled dinner plans with her daughter; even that slot was filled up at the last minute.

“It’s the price of being in a global organisation in Asia,” she says. “There are a lot of advantages connecting with your global colleagues but at the same time the Asian team bears the brunt of it.”

Kim is on a quest, however, to ensure that CPPIB encourages a good culture for employees.

CPPIB has a goal globally for half of all its new hires to be women by 2020. In Asia-Pacific, where women’s participation in the workplace dipped last year according to a World Economic Forum report, the pension fund is bucking the trend: more than half of its employees are women.

“We take a lot of time doing due diligence on our partners and do direct transactions alongside them, which helps us to get to know them better”

The fund’s total assets amounted to C$337.1 billion at end December 2017. Private equity made up 19.4 percent or C$65.4 billion of the fund’s portfolio, which generated a net return of 6.7 percent as at end December 2017.

“Private equity is a very important asset class for us. It has been a great source of return for us and we will continue to invest in it,” Kim says.

The challenge, she points out, is whether CPPIB can keep up and grow its private equity investments in proportion to its overall asset size. Pension plan reforms agreed in late 2016 would see an increase in its current rate of 9.9 percent to 11.9 percent beginning in 2019, boosting the public fund’s assets over the long haul.

“As a manager we don’t take it lightly. There’s great pride to have that confidence, but with that confidence comes a lot of responsibility,” Kim tells PEI. “In fact, the Chief Actuary of Canada has forecasted that we will reach C$15 trillion by 2090.”

CPPIB has made bold bets that have paid off in its 10 years in the region. It made a $100 million investment in an obscure Chinese internet company called Alibaba in 2011, increased its stake the following year and then again in its blockbuster initial public offering. The fund still holds that position and Alibaba is set to beat Amazon to become the first trillion-dollar internet company by 2020, analysts say.

Similarly, the pension has backed the funding rounds of Meituan-Dianping, China’s largest service-focused e-commerce platform, even though the team had some debate about the exit model, Kim recalls. The company’s latest valuation: $30 billion.

Partnering up

In Asia, opportunities exist everywhere but there are still challenges turning them into deals. Kim stressed the need to find the right partner for a specific set of opportunities.

“We take a lot of time doing due diligence on our partners and do direct transactions alongside them, which helps us to get to know them better. When we look at our private equity managers specifically, our four evaluation criteria include: strategy, team, track record and alignment of interests. We generally follow a fund manager for multiple fundraising cycles.”

FountainVest Partners is one example. CPPIB anchored the Hong Kong-headquartered manager’s $950 million debut fund in 2007, despite FountainVest’s relative lack of track record. In 2013 CPPIB backed its second China fund which raised $1.35 billion in just nine months. It also partnered with the firm on several deals.

This approach is key to how CPPIB has ramped up its direct investments in Asia in the last decade years, Kim says.

“We set up partnerships first by investing in private equity funds as well as by establishing relationships with other like-minded institutional investors that we can potentially work with,” she explains.

CPPIB makes commitments to pan-Asia and country-focused private equity funds, with a minimum fund size of $500 million. It has backed TPG and KKR’s Asia funds, as well as China-focused CITIC Capital, Japan’s Advent Fund, India’s Multiples Alternate Asset Management and North Asia-focused MBK Partners.

A Hong Kong-based GP points out that the way CPPIB works in Asia is “fundamentally different than what they have been doing in Canada”, but they adapt in the region by working with private equity firms and anchoring the funds to build a relationship. In North America and Europe, CPPIB focuses on direct large private equity transactions through co-sponsorships, strategic investments and financial institutions.

Mounir Guen, founder and chief executive of MVision says:” Asia is extremely difficult to get access to top GPs and difficult to deploy capital if you’re an investor of that size as CPPIB. Kim is manoeuvring through all this complexity and has built an incredible portfolio in the region. She’s an exceptional individual in the work that she’s done in Asia – putting to work a significant volume of capital.”

CPPIB concentrates a large amount of capital under a few roofs – about 20 GP relationships in Asia – and takes those relationships seriously. Kim says as an LP it can also offer an exit route for their partners, as it can stay on if it likes the investment.

 Eye on China

Kim is also leading the fund’s expansion in China, a market that currently accounts for more than 20 percent, or almost C$20 billion, of the fund’s Asia portfolio.

Her target is to increase this exposure to C$150 billion by 2030.

“When I first joined 10 years ago, our reference portfolio had no emerging markets exposure,” Kim says. “Shortly after, that went up to 5 percent, now we have a target of 15 percent, but will likely increase that to 20 percent or higher. Within emerging markets, China is a big component, and hence that’s where our C$150 billion estimate is coming. It is a long-term commitment that we have to the market that we take very seriously in terms of who to talk to and partner with.”

CPPIB’s investment thesis in China is centred on the consumption story, which Kim believes will continue to grow.

“As China turns into a more traditional private equity market with control transactions I’m excited about the opportunity to work with managers who can deliver the transformation of such businesses”

“We started investing in China logistics almost nine years ago through a joint venture with Goodman Group. That minority investment, a little more than $100 million back then, is now more than $3 billion,” Kim says. “We saw a need in the market for modern warehouse facilities as consumption picked up. It was betting big on Chinese consumption.”

It was also the main thesis for the 3.2 billion yuan ($500 million; €400 million) direct investment in Postal Savings Bank of China in 2015. The retail bank has more than 400 million depositors and 40,000 branches across the country, and CPPIB was attracted by the number of touchpoints the bank has with its consumers.

As part of its long-term view, the pension fund has hosted roundtable discussions in Beijing on the topic of long-term capital allocation across stakeholders. It is also assisting Chinese policymakers in addressing the challenges of the country’s ageing population.

Look to the future

When asked about the next decade in Asia, Kim is most enthusiastic about technology and China.

At the Asia Private Equity Forum in Hong Kong in January, Kim noted technology is playing an ever-greater role in the asset class, and GPs that focus on it will become “next generation” managers. The next breed of GPs, Kim said, will include captive platforms from technology giants such as SoftBank, Alibaba, JD.com and Tencent.

“As China turns into a more traditional private equity market with control transactions I’m excited about the opportunity to work with managers who can deliver the transformation of such businesses. I’m also excited about the companies revamping, particularly on the technology side. Valuations, however, remain a big concern for us.”

Technology “cuts across many different industries –  it’s something we need to get as much exposure [as possible] to and learn about,” Kim tells PEI.

“To do this, we have gone into strategy sessions and invested into a number of managers like DST, Hillhouse Capital, TrustBridge Partners, so we can get our heads around the sector a bit better. We are not familiar with evaluating companies where there’s no revenue or profit, it’s a bit hard from a traditional private equity investment perspective.”

Kim finds the progress of technology in China “amazing”, particularly the ways in which companies can use data and technology to make their business more efficient, and she is excited about turning that progress into  portfolio company improvements.