Taking long view on China

Canada Pension Plan Investment Board chief aims to make the Asian giant a core part of investment strategy

The Canada Pension Plan Investment Board wants its presence in China to match the country's contribution to global GDP, Mark Wiseman, its president and chief executive, says.

The pension fund is one of the largest in the world, with assets of $215.7 billion as of December.

Roughly $10 billion, or 4.3 percent, of those assets are invested in China. Yet to keep pace with the country's forecast contribution to GDP, that will need to rise to 25 to 30 percent by 2040.

"If we want to be GDP-weighted, we have a massive way to go in terms of our growth," Wiseman says.

He intends to increase investment in China significantly by tapping rising consumer demand and building cross-asset portfolios that cover real estate, logistics, infrastructure, and private and public equities markets.

The fund began investing in China in 2008 and has signed several high-profile deals, including making a $314.5 million investment in e-commerce giant Alibaba Group Holding Ltd in 2011 and forming a joint venture last year with Vanke Co Ltd, a major residential property developer, to invest $250 million in China's real estate market. Recently, it invested $500 million in Postal Savings Bank of China Co, which is planning an initial public offering.

The Canada Pension Plan Investment Board also manages an investment quota of $1.2 billion in the Chinese equities market under the qualified foreign institutional investor program, and has gained a license to invest in the country's interbank bond market.

Wiseman stresses that the fund takes a long-term view on China. Instead of looking at short-term movements in the equities and foreign-exchange markets, he says, it focuses on larger trends, such as the economy's shift away from inefficient industries to more-productive private and service sectors.

"That's why we're holding a positive view on China and continue to make China a core part of our investment strategy."

Wiseman recently sat down with China Daily. The following are edited excerpts from the interview:

What is your assessment of the Chinese economy, and how will the country's economic transformation affect your investment strategy?

The 6.5 to 7 percent growth figure is achievable. We take a long-term view. We're not hot money; we don't focus on what happens to the Shanghai Stock Exchange on Wednesday or what currency markets do on Thursday. We're looking at the big trends, including what is happening to the demographics and to the rise of consumer demand, and how the economy is shifting away from inefficient state-owned industries to having a larger proportion of economic growth from the more highly productive service sector.

Today, we have $10 billion invested in China, about 4.3 percent of the fund. The challenge for us is how we take this 4.3 percent and get something closer to 25 percent (by 2040). Getting more capital into the market is one of the most important strategic issues we have.

What sectors in China do you want to increase the fund's exposure to, and what sectors do you plan to exit?

We have no plan to exit from anything. Anything essentially attached to Chinese consumers, directly or indirectly, is of interest to us. We look at opportunities in sectors related to the growing middle class and the growing consumer demand driven by the private sector, as opposed to the state-owned sector.

How do you manage risks of your investment in China?

We don't hedge risks. We manage risks by being very careful about who we choose as partners. It also involves being incredibly diligent when we decide to make any individual investment, whether it is a piece of real estate or in a private equity company.

People make mistakes in thinking that investing is about hedging risks. That would be a free lunch. In the investment business, there is no free lunch. We know we have to take risks. We want to make sure that we understand the risks and are able to get compensated appropriately.

How do you see the volatilities of the Chinese stock market and the way the government stepped in to stem the market rout?

The best solution to have a disciplined market is to have disciplined investors. So the more long-term institutional investors with deep experience who are able to participate freely in the market, the less volatility and the greater degree of rationality that will be in the market.

While volatility scares some investors, we see opportunity. It's because investors are coming in and out, selling and buying, we keep our eyes focused on the horizon, which allows us to find deep value. We think it's a very attractive investment environment right now for long-term investors.

Is there any experience from the Canadian pension fund reform that you think China can learn from?

We're lucky in Canada that in 1997 there was a fundamental reform of the national pension scheme, which was led by then-finance minister Paul Martin, who tried to put in place a system that would be sustainable for generations.

China has a population that is living longer; but you also have a population in terms of structure that is going to be disproportionately old as a result of the one-child policy. It's better to start earlier, to look at the structure of the pension system and understand that you want to be in the position to support the retirees for a long time.

The good news is that China has time given its economic growth and the profile of the population; but it doesn't have much time. So the sooner the government is able to move through those reforms, the better.

What is the difference between managing a pension fund and a regular investment firm?

In many respects, we operate like an investment company because we have one client, which is the national pension system. One big difference for us is that we always need to have an understanding of our liabilities. There are 19 million people in Canada who rely on our investment.

We know very clearly that our job is to make risk-adjusted returns in order to pay the pensions of 19 million people. In many respects, we have an easier time managing our portfolio than a private asset management firm that has many different clients with many different needs, or a sovereign wealth fund where it is often not clear who the client is.

What is your management philosophy?

There is a Chinese proverb that goes, "Never trip on the same stone twice." In the investment business, making mistakes is OK. What you don't want to do is make the same mistake twice. My philosophy is that taking risk is part of the job and part of constructing a good portfolio. What defines what we do at the pension fund is constant learning and refinement of the processes and our knowledge.

What are your hobbies?

I'm Canadian, so I love anything to do with ice hockey. I've played for 40 years, since I was 4 years old. I very much look forward to the 2022 Winter Olympics in Beijing.

lixiang@chinadaily.com.cn

(China Daily Africa Weekly 04/22/2016 page31)