CPPIB and the Caisse Focus on EMs?

Oct 18 00:10 2018 Print This Article

CPPIB put out a press release, Driving long-term value creation through investor-corporate dialogue in Brazil:How long-term value creation can be driven by investor-corporate dialogue was the subject of an October 9 discussion with senior executives from Brazilian corporations at CPPIB’s Sao Paolo offices.A McKinsey Global Institute analysis of 615 large- and mid-cap U.S. publicly listed companies from 2001 to 2015 shows clearly that focusing on the long term reaps economic benefits.The study finds that between 2001 and 2015, companies classified as long term added nearly 12,000 more jobs on average than other firms. Similarly, they found the market capitalization of long-term firms grew $7 billion more on average between 2001 and 2014 than that of other firms.Still, an FCLTGlobal survey of more than 1,000 executives and directors globally finds short-termism remains pervasive – 87% of respondents say they feel pressure to demonstrate strong financial performance within two years or less. This is an 8% increase from 2013’s survey results. Our President and CEO Mark Machin and Rodolfo Spielmann, Managing Director and Head of Latin America, shared these findings to prompt discussion on practical actions shareholders and companies can take to drive long-term value creation in Latin America.There was general agreement among participants that interactions between shareholders and corporations in Latin America are effective, given the ownership structures and economic conditions that are unique to the region. The engaging discussion ranged from the short-term pressures facing Latin American corporations, to the differences between how public companies and private companies view the issue.Participants also shared their experience and discussed effective ways to promote long-term behaviour.Brazil is one of the emerging markets CPPIB has plans to grow its allocation in over the next few years.It's not the only pension fund interested in Brazil. Bloomberg reports French utility Engie SA and a the Caisse plan to offer as much as $9 billion (34 billion reals) for Petrobras’s natural gas pipeline network, potentially a $1 billion boost from their initial bid.Apart from Brazil, there is a keen interest in India and China. The Caisse just increased its stake in Azure Power Global Ltd. (Azure Power), a leading player in solar energy, to 40% through a US$100 million contribution to the company’s recent capital raising. This new investment in Azure Power brings the total amount invested by CDPQ to US$240 million:Azure Power is one of India’s largest independent solar power producer with a pan-Indian portfolio of more than 3 GW spread across 23 Indian states. With its in-house engineering, procurement and construction expertise and advanced in-house operations and maintenance capability, Azure Power provides low-cost and reliable solar power solutions to customers throughout India. It has developed, constructed and operated solar projects of varying sizes, from utility scale, rooftop to mini & micro grids, since its inception in 2008.“Through this investment, we are reaffirming our commitment to Azure Power and our willingness to support its growth. Azure Power is a leader in the fast-growing sector of solar power in India, a priority market for CDPQ, and has a high-quality management team that possesses thorough knowledge of the industry. Furthermore, this transaction fits perfectly with CDPQ’s desire to contribute, as an investor, to a global low-carbon economy,” said Mr. Emmanuel Jaclot, Executive Vice-President, Infrastructure at CDPQ.“CDPQ’s successive investments into Azure Power since we went public on NYSE in 2016 are a strong testament of our leading solar power platform in India. CDPQ’s new investment enables our continued organic growth of highest quality solar power assets and our contribution towards realization of India’s Hon'ble Prime Minister's commitment towards clean and green energy", said Mr. Inderpreet Wadhwa, Founder, Chairman and Chief Executive Officer at Azure Power.I just covered how Canadian pensions have crossed an important ESG threshold and it's fair to say that the Caisse is taking the lead in terms of impact investing by signing a big deal with Al Gore’s Generation Investment Management.The Caisse has explicitly stated it aims to cut its carbon footprint by 25% by 2025 and its leader, Michael Sabia recently sounded the alarm on climate change but also stated it represents an economic opportunity and pensions need to invest in these opportunities.His counterpart at CPPIB, Mark Machin, has pledged a 'huge push' on climate change risk assessment:Canada Pension Plan Investment Board chief executive Mark Machin pledged Thursday to step up the assessment of global climate change risks to make better investment decisions, as the fund he oversees posted an annual net return of 11.6 per cent.“We’re going to make a huge push on it this year… We want to do a much better job of being able to understand the risks that we’re taking on in each investment and the risks we have embedded in the portfolio, and make sure we’re being paid for them,” Machin said in an interview. “If we’re not being paid for the risk, then it doesn’t make sense to own them. Others, where we think we’re being paid for the risk, then we’ll continue to own them.”He said much more work needs to be done on key questions including how quickly the “energy transition” from traditional sources to alternatives and renewables will take place. This will be influenced by a number of factors, from geography to government policy and regulation to social demands. “Nobody’s cracked this, nobody’s got a great tool kit yet, so we’re having to develop it ourselves,” Machin said.“We don’t think it’s going to happen by next year. We think there’s still going to be a role for oil and gas related assets for some period of time. But how fast that transition happens is one of the key drivers, and then we need to understand all the other risks embedded in each investment.”CPPIB, which invests money for Canada’s national pension scheme, is pairing its plan to build better ways to measure the risks inherent in sectors such as oil and gas with a concerted search for more investments in alternative and renewable energy assets.CPPIB has a long-term focus and its strategy and this is why it needs to pay attention to climate change risk, just like all other pensions.Its long-term focus is also why it is aiming to double its allocation to China by 2025. During a recent trip to Beijing, Mark Machin spoke to China Daily's Jiang Xueqinq about how the fund plans to lift its China investments:

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About Article Author

Pension Pulse

Leo Kolivakis is an independent senior economist and pension and investment analyst with years of experience working on the buy and sell-side. He has researched and invested in traditional and alternative asset classes at two of the largest public pension funds in Canada, the Caisse de dépôt et placement du Québec (Caisse) and the Public Sector Pension Investment Board (PSP Investments). He's also consulted the Treasury Board Secretariat of Canada on the governance of the Federal Public Service Pension Plan (2007) and been invited to speak at the Standing Committee on Finance (2009) and the Senate Standing Committee on Banking, Commerce and Trade (2010) to discuss Canada's pension system.

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