Commercial realty will remain an important area for CPPIB: Senior MD

Alain Carrier(left) with Vikram Gandhi
Canada Pension Plan Investment Board (CPPIB) has invested around CA$8.2 billion (nearly USD $6.24 billion) in India since it started investing here in 2009, with a focus on infrastructure, real estate and financial services. It has invested in companies such as EdTech Byju’s and recently backed IndInfravit Trust’s move to acquire the road projects of Sadbhav Infrastructure. Alain Carrier, its senior managing director and head of international, and Vikram Gandhi, a senior adviser, spoke to Raghavendra Kamath on their strategy and views on the economy. Edited excerpts:

The non-banking financial and real estate sectors have gone through a lot of stress in the past year or so.  You have been an active investor in both sectors. Are you looking to revisit your investment strategy in these?

Alain Carrier: We are here for the long term and India is an attractive market. Market dislocations, by and large, offer more opportunities. I cannot specifically comment on our investment strategy but we think there will be a lot of opportunities for us in India, in terms of credit, stressed assets and so on.

The macro-economic indicators here are not showing a great picture. Does that make you worried as a global investor?

Carrier: When you look at India from the prism of a long-term investor, there are a lot of positive aspects, like where India is in the whole cycle. Gross Domestic Product per capita is at a higher elevation as compared to 10-15 years ago but the story is not exactly the same. You can see the levers now, that in the long term, will bring a lot of people in the economy. The technology, the Jio story..India is on the cusp of a transformative growth story where, for the addressable market, consumer companies go beyond the initial $100 million. Once you get up that curve and get the tools to enable you to reach deeper into the population, the long-term story is going to be very positive in India. If you take a long-term perspective, the macros are right. 

We think there is less capital available in India today from domestic sources or, to some extent, foreign sources. But, this makes large pools of capital like us more attractive and yield more opportunities. We have been big investors and are still looking at many opportunities in infrastructure. As an example, China is a much bigger market but we have not invested a single dollar in Chinese infrastructure, since they don’t need our capital. They use infrastructure as a tool of economic policy.

Why are you bullish on the Indian infrastructure story?

Carrier: Because there is a massive infrastructure deficit, as a requirement for the country to keep growing and achieve its potential. There is shortage of local capital to finance the infrastructure and the Indian government does not use infrastructure as a tool of economic policy. It does not have capital to deploy it by itself. This means it needs to be careful about the regulatory environment for infrastructure and welcoming of foreign capital. 

If you look at foreign investors in India, Blackstone has done asset-by-asset investment, Brookfield has done buyouts. You have done platform deals. Why have you chosen this model?

Carrier: Partnership is our model in most countries. Infrastructure we do directly in many. In India, since we are new to the market, we decided to invest with partners.  In real estate, our strategy globally is to align with partners, as it is a very domestic and local business; it is better to do with trusted partners. In international markets, the biggest decision we make initially is to pick the right partner. Our first infrastructure investment in India was Larsen & Toubro — we took a lot of time in picking the right partner.

Vikram Gandhi: In public markets, we have Kotak and others. Our strategy is to go with partners. The impediment in increasing our exposure to India is finding the right partner — that is really critical. The second is finding opportunities and transactions where we can put meaningful amounts of money. Third, with the right partner and large transaction, whether risk-return meets our criteria. We are patient and wait for the right opportunities to come along. 

Are you looking to enter residential real estate or alternative properties such as student housing, co-living and so on?

Gandhi: Our current exposure to real estate is around malls, logistics and commercial real estate. We continue to explore opportunities in sectors such as student housing, co-living and so on. But, we have not done anything in this so far and do not know what those explorations will lead to.

You have been searching for a partner to co-invest in rent-yielding office properties. Any progress on that?

Gandhi:  While we have a partnership with Shapoorji Pallonji, we exited an asset we had over there. We are happy and satisfied with that. We have been in dialogue with some firms but nothing has been publicly announced. Hopefully, there will be some announcement soon. Commercial real estate will remain an important area for us.

Your joint venture (JV) with Shapoorji for rent-yielding assets and another with Piramal did not progress much. What went wrong?

Gandhi: Nothing wrong with both the JVs. Basically, in the JV with Shapoorji, we bought a big asset in Chennai and sold it. That was the objective. Since we sold the asset, we continue to explore other opportunities in commercial real estate. In the JV with Piramal, a lot of liquidity came into the market at that time and brought down the returns. Hence, we decided not to go ahead with investments. We have a wonderful relationship with them. Recently, we announced a JV for a renewables InvIT (infra investment trust) and will continue to explore other opportunities with them.

Would you look at floating a real estate investment trust (Reit) here?

Gandhi: As you know, we have done an InvIT with L&T IDPL as sponsor, and we and Allianz as investors. We have given many inputs. It is a useful structure for that asset. We have a similar view on Reits. At the right opportunity, we will look at it but not right now.

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