At the Asia Summit hosted by Milken Institute, three global asset allocators discussed the reasons they are investing in private markets and where they are mostly focusing their efforts.
Canadian institutions Canada Pension Plan Investment Board, Ontario Municipal Employees Retirement System and Public Sector Pension Investments gave their views.
According to Alain Carrier, a London-based senior managing director and international head at CPPIB, his team is looking at growth-oriented long-term assets, particularly focusing on emerging markets. “Asia has been the lion’s share of that,” he adds.
He believes private assets will outperform if investors have the flexibility to help manage them, such as engaging in investee companies’ boards for better governance structures.
Private market exposures make up about 65 percent of CPPIB’s global assets under management, mainly in private equity and private equity real estate. The organisation’s global credit assets under management were C$36.6 billion ($27.6 billion; €24.8 billion) at the end of March 2019.
Private credit and agriculture assets have become recent additions to OMERS’ $100 billion-sized investment portfolio, according to Blake Hutcheson, OMERS president and chief pension officer. Although he did not disclose further details, private asset classes – spanning private equity, private credit, real estate, infrastructure, and agriculture-related commodities – are generally perceived as “a source of greater risk premia and diversification” to global investors, he said.
Hutcheson believes the best way to access to dealflow and talent in the private investment industry is through co-investment and direct investment programmes. He told attendees that the way that his organisation has set up its private market businesses is based on the generation of dealflows. “We believe that partnering up with locals as operating partners is the way to go for us,” he added.
He said his team is especially active in real estate platforms and direct investments totalling up to $50 billion, including the financing of Hudson Yards in New York. The real estate investment arm of Ontario Municipal Employees Retirement System is reportedly one of the main developers of Hudson Yards. Its end-2018 results show OMERS deployed $10 billion in new private investments during 2018.
Neil Cunningham, PSP’s president and chief executive officer, said the organisation’s liability profile is changing, with net inflows reduced, and eventually negative. The current target return is 4.1 percent plus inflation rate.
“The strategy of diversification is the only free lunch, so we believe we need to be everywhere,” said Cunningham. One challenge of being a global investor is identifying and distinguishing between temporary and permanent changes across sectors, in addition to having a diversified portfolio, he added.