At SALT: CPPIB Goes Long in Emerging Markets

Canadian pension plan eyes growth in emerging markets as valuations get bubbly in the developed world.

The $368.5 billion Canada Pension Plan Investment Board (CPPIB) is going long in emerging markets. Speaking from the stage at Anthony Scaramucci’s SALT conference underway in Las Vegas, John Graham, senior managing director and global head of credit investments at CPPIB, said that the growth story in emerging markets is compelling.

Up to one-third of the Fund is set to be invested in emerging markets” he said. “We’re playing the long game.”

Approximately 20% of the pension’s portfolio is currently in emerging market investments. Graham highlighted the growth opportunities in China, noting that rule of law has improved. “The legal framework in many emerging markets is getting better,” he said. “The courts in Shanghai and Beijing are actually very good.”

According to Graham, emerging markets are not only more mature and resilient than they once were, the growth of their consumer classes is likely to continue even if the developed economies start to show signs of weakness. Emerging market economies are also taking steps to become more investor and creditor friendly, in contrast to trends in some developed economies. “There are plenty of European countries that aren’t creditor-friendly and won’t be,” Graham said. He added that it’s important for investors and managers to focus on rigorous due diligence in emerging markets. There are still concerns about fraud, but the process is worth it in countries that are willing to work with investors and creditors, and maintain rule of law, he said.

On the domestic front, Graham said he was positive on the collateralized loan obligation (CLO) market. CPPIB is working with its credit managers to create a framework that identifies investment opportunities of institutional size and scale. “We think the CLO market is a positive asset class through the cycle,” Graham said.

The pension is also ramping its investments in technology companies. CPPIB is a cornerstone limited partner (LP) in a new $350 million artificial intelligence (AI) fund run by Radical Ventures, a technology investment firm. The fund will seek out companies that have the potential to leverage AI to create a competitive advantage in markets of significant size. Other investors in the fund include the Public Sector Pension Investment Board (PSP Investments), TD Bank Group, and Wittington Investments Limited.

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