CANADA - The C$41bn Ontario Municipal Employees' Retirement System (OMERS) is eyeing emerging markets infrastructure investments and could make its first investment in India or China in the next two years.
Provided the fund was willing to accept a higher risk, Michael Nobrega, CEO of Borealis, the OMERS-owned infrastructure investment vehicle, said the two markets could prove “very useful” in the future.
“As yet we have not taken any steps, but we have researched it,” he said. “Are we going to do something hopefully in the next couple of years? I would say the answer is yes. Provided the political and legislative environments are comfortable, we would certainly look at the opportunities.”
Nobrega said that, from a risk adjusted return perspective, western Europe would be ideal for infrastructure investments as it was part of the G7 and legislation was fairly transparent.
“But if we want a higher risk, then India and China could be very useful for us,” he said. “In places like Australia the prices are too high... and also Australia has a lower population density like Canada, which makes it slightly less attractive.
“So for large infrastructure, places like China and India are huge opportunities. But are we prepared to put billions of dollars into it? Those are areas we are exploring.”
Claude Lamoureux, CEO of the C$96bn Ontario Teachers’ Pension Plan (OTPP) remained tight-lipped about the prospect of investing in emerging markets infrastructure, but said: “We always look at the whole globe when we invest, and at the end we will only invest in areas that reward us for the risk taken.”
Michael Rice, director at Rice Walker Actuaries in Australia, pointed to a growing tendency to invest directly in infrastructure and a “great interest” in China and India.
“Further, China is a large trading partner with Australia,” he said. “While most international investment is through US-based fund managers – who tend to tilt towards US investments – there are a number of specialist funds for trustees wanting to invest in BRIC countries.”
But Simon Ibbetson, director of investment consulting at Standard & Poor’s in Australia, was more sceptical.
“I would be surprised to hear about consortiums with pension funds getting involved in infrastructure investments in the area,” he said.
The issue with both China and India was illiquidity, because of the capital controls in India and currency issues in China, he added.
“With India you can’t get your money out, so it becomes even more illiquid than a normal infrastructure investment,” Ibbetson said. “Also in China you have some very serious legal hurdles. For example, they don’t have any property laws, which is pretty fundamental if you’re buying a dam or a highway. So we are certainly not looking at China as an investable destination just yet.”
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