CPPIB keen on larger equity deals, eyes high-yield debt in India

Canada Pension Plan Investment Board (CPPIB), which has invested around $1.5 billion in India over the past year, is keen to find larger-sized investment opportunities across various asset classes in the country, its chief executive said on Wednesday.

The North American nation’s largest pension fund is also interested in finding opportunities in principal credit in India, Mark Machin told reporters in Mumbai. Principal credit refers to sub-investment grade corporate debt, which are riskier than investment-grade debt but yield higher returns.

“We would love to invest more in principal credit, if we can find opportunities. We would love to see more private equity through working with our partners as well as direct opportunities,” said Machin, who is also CPPIB’s president.

CPPIB executives said that, although the firm was sector-agnostic, it would like to do more direct equity investments in sectors such as financial services, education, healthcare, retail and consumption-focussed segments to take advantage of the demographics in India.

In the infrastructure sector, roads and renewable energy are of special interest to the firm. The firm also plans to do more PIPE deals, Machin said, referring to private investments in public equities.

The firm has, so far, committed $6 billion in India since its first deal in 2009. Of this, around $1.5 billion was committed over the past 12 months. Its single-biggest bet thus far in India is the $500 million investment in logistics company IndoSpace Core.

Globally, CPPIB often strikes bigger deals. In April, for instance, CPPIB and Baring Private Equity Asia took New York-listed school chain Nord Anglia Education private in a $4.3 billion transaction.

“That’s the type of deal that we would love to do,” Machin said. “The reason we haven’t done that here is because not enough opportunities have come along.”

The PE firm is hopeful of finding such opportunities in the country. “India is a broad market. We will find such opportunities”, he said.

The Canadian firm makes investments across private equity, private debt, infrastructure and real estate verticals as well as public equity investments. It also comes in as a limited partner, or investor, in PE funds. In India, it has invested in funds of private equity firms True North and Multiples PE.

Besides, the firm had formed a joint venture with Kotak Mahindra Bank last year to invest in stressed assets. However, the JV has yet to strike a deal.

“While there has been a lot of talk about distressed assets, the actual number of meaningful investment opportunities in that area—not just for us but for anyone else—has not been that high,” said Vikram Gandhi, senior adviser to CPPIB.

Happy with returns

Contrary to some other early investors in India, CPPIB executives said that they were happy with the returns from the country.

Machin declined to specify how much the firm had earned from its investments in the country. Globally, the firm reported a blended return of 6.9% over 10 years across all regions and asset classes.

Machin said the key to investing in India was to find the right partners and investing for the long term. “We are very happy with the partnerships created here,” he said.

“If people have complained (about poor returns), either they have the wrong partners–which can sometimes happen–or they may have timed investments on a short-term basis,” Machin said.

“You have to be here for a longer term. If you look at the return on equity over 20 years, it is in high teens–which is fantastic. If you just try and invest for two or three years, then you can hit the wrong spot,” he said. “The trick is to not get too euphoric or too depressed.”