The LatAm countries that Canadian pension fund CPPIB is targeting

By: Bnamericas

The Canada Pension Plan Investment Board (CPPIB), one of the world’s largest pension funds, has selected five countries in Latin America as part of its plan to increase investments in emerging markets. 

As part of this strategy, CPPIB will focus on Brazil, Mexico, Peru, Chile and Colombia as those countries offer an attractive expansion potential and long-term legal stability. 

The fund closed its fiscal year ending March 31 with assets worth US$410bn.

Rodolfo Spielmann, who is managing director and head of CPPIB’s operations in Latin America, talked with BNamericas about the plans for the region.

BNamericas: How does CPPIB operate and what are your investment strategies?

Spielmann: CPPIB is an asset manager for the Canadian workers’ pension funds, with the exception of the province of Quebec.

The fund has recorded a surplus since the 1990s when there was a reform to the system. So this means that the fund brings in more than what it spends on pension payments and this generates a surplus for us to invest in assets worldwide.

It is important to explain the fact that we have a surplus because that gives us the peace of mind of adopting a long-term investment strategy. There are no risks of liquidity events as we are in no rush to sell assets.

Based on this strategy, we look at investments in various asset classes, from short-term assets such as derivatives, index funds and commodity funds, to exchange rates, and long-term assets, such as equities. And [we] also look at assets in the infrastructure, energy and real estate sectors.

BNamericas: What are CPPIB’s strategies for Latin America?

Spielmann: We have a division within the fund that we call emerging markets which mainly includes China, India and some countries in Latin America. It also includes a small number of countries in Southeast Asia.

With that said, our investment position in emerging countries is around 21% of our portfolio and we want to reach 33% by 2025.

In Latin America, we have a well-defined strategy focused on five countries: Brazil, Mexico, Peru, Chile and Colombia.

Of these five countries, we have already invested in four and we want to make an investment debut in Colombia.

BNamericas: What is your plan for Colombia?

Spielmann: In Colombia, we have been evaluating operations in a private equity format, in addition to the infrastructure, real estate and energy sectors. We are interested in the country because it has a long-term positive outlook.

BNamericas: In the Latin American countries, what kind of assets are you interested in?

Spielmann: What we are looking at are mainly assets in the area of infrastructure and sanitation. We also look at the credit market and private equity operations, along with the real estate segment. It is a very diversified strategy.

We have all these diversified strategies because we have groups organized globally that look at assets in different segments, energy, infrastructure, among others.

Our plan is to increase the share of assets in emerging markets because in the long term they are assets and regions that generate the greatest investment return.

BNamericas: In the region, especially in Brazil, there is an ambitious agenda of government concessions. Are you interested in participating directly in these concessions?

Spielmann: We are hardly going to make an investment in a green field project. It is not in our interest, for example, to build a highway, an airport. Our focus is to act as a financial investor, we do not engage in the execution of works and projects because we do not have this expertise.

We like to invest in operators, like we do in Chile, in highway operator Grupo Costanera, or in the sanitation area in Brazil, where we acquired a stake in [utility] Iguá Saneamento.

With that said, I think sectors such as highways, the digital infrastructure sector, here I am talking about telecommunications towers, airports, ports, urban infrastructure and sanitation, are all segments that interest us.

BNamericas: Amid the growing global demand for ESG [environmental, social and governance] practices, are there sectors in which you do not invest or plan to reduce your investments?

Spielmann: We have a culture of evaluating all our investments taking into account the ESG aspects. Because of this, we have never invested, for example, in the US prison sector or in companies in the arms sector.

On the other hand, we have been working with the companies that we invest in for greater engagement with the energy transition. So we exert influence so that these processes evolve within the companies we invest in.

BNamericas: Latin America is a region that has been strongly affected by the COVID-19 pandemic. How do you assess the current scenario in the region?

Spielmann: First we need to talk about the impacts on the health side.

In Latin America we have a sad record in terms of the number of deaths and infections. This is very sad, but I also think that there is an aspect in the region that the accounting of these numbers has been more correct and transparent than in other countries of the world, where the accounting of deaths and infections seem to have been a bit underestimated.

That being said, this is a scenario that will not improve very fast and the only thing that will help is the vaccine.

So we still have a job to do with more vaccination and this is what worries me the most as only this [faster vaccination] will open the doors of the economy.

Regarding economic performance, the region’s economy, mainly here in Brazil, was not so bad last year as expected. But this year growth in the region should be less than what we will see in developed countries, which have advanced faster with vaccinations.

At the same time, governments in Latin America have to make progress in terms of economic reforms to attract private sector investments.

We have a clear example of this: In Brazil, we invested this year in Igua Saneamento after the regulatory change in the sanitation sector. The reforms are already attracting investments and we are the best example of this since Igua was a winner in the recent sanitation [concession] auction in Rio de Janeiro.

Economic reforms move the economy, generate investments, generate jobs.

It is important that the concession and privatization agenda in Brazil continues to advance and that is what attracts long-term capital.

BNamericas: Recent elections in Latin America point to a strong polarization between the forces of the left and the right. How do you assess this scenario?

Spielmann: I would like to use an example that we saw in Brazil. In 2002, when the PT [the leftist Workers party] came to power there was fear of a rupture in the country and there was a strong outflow of capital. Over time we saw that there was no rupture, the government that took office adopted fiscal responsibility and things moved forward.

In Mexico today, we have some negative news, but looking at the big picture we see a responsible government.

In Chile there are changes regarding the country’s constitution that are in progress, but all within a democratic process. So what we see are movements of volatility, but that do not point to a rupture.

A rupture takes place when we have breach of contracts that affect long-term contracts of 30 or 35 years. Major rule changes have not taken place in the region, with some exceptions of course like Venezuela, and to some extent Argentina.

At the end of the day, what matters for investors is that there are no changes to the rules of the game.

When I told you that our focus is to invest in five countries here in Latin America, this is because we are convinced that in these countries the rules of the game will be maintained.

I think the message I have for governments in the region is that the homework to be done now, is to move forward with the reform agenda.

Original article: https://www.bnamericas.com/en/interviews/the-latam-countries-that-canadian-pension-fund-cppib-is-targeting