Ontario Teachers’ Pension Plan Cautious About Investing in China; Lack of Clear Information in China Is a Hurdle to Investments, Fund Says

September 16, 2013, 6:31 a.m. ET

Ontario Teachers’ Pension Plan Cautious About Investing in China

Lack of Clear Information in China Is a Hurdle to Investments, Fund Says

ISABELLA STEGER

The Ontario Teachers’ Pension Plan, one of the world’s biggest pension funds, opened its Hong Kong office with a note of caution about investing in China, saying lack of clear information could make it difficult to invest there. “I think we have to proceed with caution” in China, said chief executive Jim Leech, who is due to retire at the end of the year after six years in the top job. The fund, which has about 129.5 billion Canadian dollars ($125.9 billion) in assets under management on behalf of about 300,000 teachers in Canada’s most populous province, officially opened its Hong Kong office on Monday, its second major international office after London. The fund currently has about C$1.5 billion invested in the Asian-Pacific region, but faces rising competition from other investors including private-equity funds and sovereign-wealth funds that are flush with cash and rival pension funds, all of which have had footholds in the region for years.In China, the fund’s most high-profile holding is a $300 million investment in Jingdong Century Trading Co., which runs online shopping site 360buy.com, according to S&P Capital IQ data. The company isn’t listed.

Chief investment officer Neil Petroff said that conducting due diligence in China was a big hurdle to getting deals done. “If we don’t have the right information and we can’t get it, it is a non-starter,” he said.

In Asia-Pacific, the fund biggest deal to date is a $2.3 billion co-investment with Hastings Funds Management in a New South Wales desalination plant in May 2012, according to Dealogic data. In March, it struck a deal to buy a majority stake in the telecommunication assets of Australia’s largest construction company, Leighton Holdings Ltd., for 619.5 million Australian dollars ($579.5 million).

Competition is heating up in the Asia-Pacific region for quality infrastructure assets, particularly in mature and well-regulated markets like Australia. The Ontario fund lost out on a deal to buy Port Botany and Port Kembla in New South Wales earlier this year to a consortium including Abu Dhabi Investment Authority and Industry Funds Management, which bought the assets for $5.3 billion. The Ontario fund competed against other Canadian pension funds in the process, including Alberta Investment Management Corp. and Canadian Pension Plan Investment Board. Caisse de depot et placement du Quebec has also been active in Australia.

Mr. Petroff said the fund “missed a great deal” in Port Botany and Port Kembla, with its offer price falling just $12 million short of the final sum paid.

The Ontario Teachers’ Hong Kong office is also opening at a time its competitors at home are escalating their interest in the region. Canada Pension Plan Investment Board, which has had a Hong Kong office for a few years, appointed former Goldman Sachs Group Inc.’s vice chairman in Asia-Pacific excluding Japan, Mark Machin, as its Asia president last year. In China, CPPIB recently raised its investment in a logistics joint venture with Australia’s Goodman Group by $400 million.

Mr. Leech said the fund sees opportunities with wealthy families in Asia. Unlike private-equity firms, who typically have a three- to five-year investment horizon, his fund “could play very well with some families in Asia” who prefer longer-term investors, he added.

“In any market that is emerging, [wealthy families] are a source of investments” when they tackle inter-generational succession issues. “We see it over and over whether in Latin America, India or Turkey,” said Mr. Leech.

The fund posted a return of 13% for 2012 compared with its internal benchmark of 11%. Mr. Leech will be succeeded by Ron Mock, currently the head of fixed income and alternative investments at the pension fund.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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