adminBackbone is CPPIB’s headquarters in Toronto and is supported by eight offices including Sydney, New York, London and Hong Kong.
Graham, who came to the top position two years ago after working on CPPIB’s private debt and credit team, said he would choose where to be an active investor (rather than passively) or when to invest directly using an internal team. or outsource responsibilities. asset manager.
“I spent a lot of time thinking about how I would compete,” he says on his first trip to Australia since taking charge.
“It’s hard to add alpha. In many markets, it’s a zero-sum game in the long run, so if you’re going to actually play it, you have to have a real competitive advantage.
“We had to be very surgical.”
CPPIB adopted a hybrid model. She invests directly in some asset classes, indirectly in others, and sometimes uses internal teams to assist with deals proposed by one of her external managers. It can also be changed within the region.
For example, the infrastructure is direct. The company has stakes in Sydney toll roads NorthConnex and WestConnex and Transurban, but has not taken any advice from outside investment managers.
In private equity with $182 billion ($202 billion) invested as of December 31st, it’s indirect. CPPIB allocates capital to funds managed by a number of PE managers and often supplements these fund-level commitments with co-investments in specific transactions.
PE managers include Australian BGH Capital, where Canadians pledged $200 million and $330 million across BGH’s two funds, and Archer Capital, which pledged $116 million in 2013.
It also has stakes in Asia-based funds that invest in Australia, including Bain Capital Asia Fund IV, which owns IPO candidate Virgin Australia, and KKR Asia Fund III, which owns accounting software company MYOB.
Combining active/passive rights and internal/external rights is difficult and constantly evolving. Often, when setting up in a new region, we go down the external path and watch for a while.
“There is no one-size-fits-all,” says Graham. “A lot of it really depends on the organization, what their aspirations are, and what their stream of responsibilities looks like.”
The good news for Australians currently spending large sums of money to set up offices and investment teams offshore is that CPPIB has shown they can make the right combination.
The company’s 10-year record of consistent earnings has dispelled the notion that it’s just “silly money” or low-cost capital buyers chasing B-grade assets outside their home market.
The bad news is that the next decade is unlikely to be all that fruitful. CPPIB may be on the cusp of recording its first negative return since the global financial crisis, as he crossed the books on March 31.
CPPIB funds lost 2.2% in the nine months to 31 December. Graham declined to comment on figures for 2023.
“As an organization, I’m not even worried about liquidity or these shocks in the (financial) system,” he says.
“What worries me, frankly, is entering a period of low real returns over the long term and low returns over the decade.
“Over the past decade, we have had a very strong market, and people are starting to expect returns well above their historical long-term averages.”
While this could be more difficult for Australian Superfunds, it will be a bigger problem for CPPIB.
The group’s wealth reached $536 billion as of December 31 and is expected to reach $1 trillion over the next decade and $3 trillion by 2050.
With an inflow of 9.8% of the wages of each Canadian worker each year, two-thirds of the capital comes from investment income, which has doubled over the years, according to Graham.
Mr Graham said Australia is an important market for CPPIB, as evidenced by its decision to keep an office in Sydney’s Governor’s Macquarie Tower.
“It’s a market we always want to enter, and we always want to invest in,” he says.
“It’s not a market we want to enter or exit, and we’re not thinking about the timing of the market.
“I am always looking at opportunities to expand existing investments that I am passionate about, as well as new opportunities. We have a large real estate, large infrastructure portfolio and we are looking at other asset classes as well. ”
An obvious place in the near future is a stake in Origin Energy’s energy markets business, which will head to fellow Canadian Brookfield as part of a $18.7 billion acquisition.
CPPIB targets renewable energy and energy transition investments globally and has extensive investment experience with Brookfield.
Graham declined to comment on live trading, but said Origin is the story “everyone is watching” around the world.
GIPHY App Key not set. Please check settings