ERS, OMERS open up new frontiers in Asian private markets

The US and Canadian pension funds have shifted to Asia for better returns and relationships.

Two North American pension funds have shifted their investment targets to Asia and are seeking competitive returns and long-standing relationships with investment partners, according to their chief executives, speaking at the Milken Institute 2018 Asia Summit held in Singapore last Thursday.

Tom Tull, chief investment officer at the Employees Retirement System of Texas (ERS), the investment division of the state’s retirement board, said that the pension fund has been investing in emerging Asia for better returns regardless of the cyclicality of public markets.

“We are believers in alternatives without a doubt,” said Tull, adding that his organisation continues to see liquidity dry-outs in public markets.

On the private credit side, ERS of Texas seeks ‘covenant-strong’ deals and being able to negotiate fees, according to Tull. Notably, the US pension fund has been investing in opportunistic credit amid the loose covenants seen in private credit transactions.

On the private equity side, the pension fund is looking for secondaries transactions this year with a view to mitigating j-curve effects and obtaining stable returns from quality assets.

Tull also disclosed that the fund recently gained an exposure to infrastructure assets, including call centres, in India and the Philippines. “Because we can get better returns than what we can get from the US financial markets,” he added.

Another US pension fund, San Francisco Employees’ Retirement System (SFERS), has allocated over $200 million to Asian private credit since 2016, reflecting its active interest in credit opportunities in the region. SFERS committed $50 million to PAG Asia Loan Fund III, $50 million to Castlelake V, and $50 million to SSG Capital Partners IV, according to PDI data.

More global asset allocators are focusing on building sustainable relationships with investment partners via direct investments and bilateral negotiations.

“Because you cannot do it [build up relationships] by flying in and flying out,” said Michael Rolland, a Singapore-based president and chief operating officer for Asia-Pacific at the Ontario Municipal Employees Retirement System (OMERS).

For instance, Canada Pension Plan Investment Board (CPPIB) has partnered with Challenger Investment Partners (CIP), a Sydney-based investment firm, for its debut investment in mid-market real estate loans in Australia and New Zealand, shows a CPPIB statement released on 31 July.

According to Suyi Kim, a Hong Kong-based senior managing director and head of Asia Pacific at CPPIB, the new partnership is a further step for the organization in the expansion of its investment activities into new asset classes across the Asia-Pacific region.

Speaking to Rolland about OMERS’ planned timeline for co-investment transactions in real estate debt markets across the Asia Pacific region, he told PDI: “We just opened our Singapore office, give us some time to establish the team and we will see it from there,” adding that the reason why their new office has set up there is to build direct relationships with asset allocators and investment managers around the world.

The Canadian pension plan managed $95 billion in net assets as at 31 December 2017. It allocated 42 percent of its total assets to alternative investments including private equity and real assets and 18 percent to a credit strategy, according to its 2017 annual report published on 23 February.