India a priority among large emerging markets: CDPQ’s Rashad Kaldany

Executive vice-president Rashad Kaldany on CDPQ’s views on India and other emerging markets, investments and sectoral preferences


Rashad Kadany, executive vice-president (growth markets), Caisse de Dépôt et Placement du Québec, Canada’s second-largest pension fund.
Rashad Kadany, executive vice-president (growth markets), Caisse de Dépôt et Placement du Québec, Canada’s second-largest pension fund.

Mumbai: Caisse de Dépôt et Placement du Québec (CDPQ), Canada’s second largest pension fund, has made investments worth $3 billion in India. CDPQ, which set up its India office in March 2016, has announced a capital commitment of $850-million for power projects in India, besides significant investments in Edelweiss Financial Services Ltd and in TVS Logistics Services Ltd. In an interview, Rashad Kaldany, executive vice-president, growth markets, CDPQ talks about the pension fund’s views on India and other emerging markets, as well as investments and sectoral preferences. Edited excerpts:

How are you thinking about your emerging markets strategy?

Three-and-a-half years ago, when I was recruited and joined CDPQ, we had a two-pronged strategy—one was reducing our exposure to Canada and the other was increasing allocation globally; in particular, to growth markets such as India. And that is what we have done over the last three years. We have grown from an average of about $400 million in new investments per annum for the three years 2011-2013 to over $3 billion in the last year. That is a very clear signal of where we want to go. When we started in 2013, our emerging markets allocation was a little under 7%; it has increased to about 10% of our total portfolio today, and we have a plan to reach around 12-13% in the next three to four years.

How much do you plan to commit to India?

Our strategy is based on very strong partnerships. We are very proud of the four direct transactions we have done till date. And it took us three years of work to develop some of these partnerships. We take the long-term view. So, whether it was with Tata Power and ICICI platform or Edelweiss…these things don’t happen overnight. We will continue to look for such high quality groups, even if they do take time to develop.

India today is our priority country amongst the large emerging markets. It’s got all the things that we look for like strong growth rates and a stable macroeconomic environment. Yes, there is room for improvement but the outlook is strong and stable. We are very encouraged by what Mr Modi and this administration have done. So, whether it’s GST, demonetization or the bankruptcy law—these are all the things that we think are very positive for long-term growth.

What is your top priority within emerging markets?

India is our top-most priority country. Today, we have a larger exposure in China mainly because of our exposure through listed equities. And in that portfolio, we follow the MSCI emerging markets index country allocation. But, in terms of our direct investments, if you look at our record in the last three years, we’ve made four investments in India and two in China. So, that gives you an indication.

Any new areas that you are looking at?

One of the reasons for my current visit is to look at new areas. And one of the areas that we’re looking at globally, also in India, is fixed income. To start, we will consider investments in sovereign and quasi-sovereign fixed income instruments. We had no exposure to fixed income in emerging markets until a year and a half ago. But since then we’ve deployed $2.7 billion worldwide, but through fund managers. And only about a year ago, we started with direct investments. We are now looking at India in this space as well.

Would you be scouting for a partner here?

We’re looking for direct investments. We’re looking at things like masala bonds, and government bonds of all sorts. We’re looking, studying, analysing this opportunity and we’re looking at some of the quasi-sovereign entities. Just as examples, SBI, the oil companies... all of these are the types of companies we are looking at.

Going forward, how much money are you looking to commit to India this year?

We started with about $1 billion about three years ago and today commitments in total are $2.3 billion. We’re very open to continuing to increase our exposure in India. But, we don’t have any specific targets.

Any sectoral preferences?

In terms of sectoral focus, as reflected in the two of the four transactions to date, we have a very big focus on infrastructure. The first two were power-focused, and we’re very open and looking now at other sectors such as roads, urban transportation, airports, ports, water, sanitation and waste management. These are all sectors we would be very interested in.

Would you look at the PPP model? Or would you look at a private investment kind of model?

We have done many PPPs in the infrastructure space throughout the world. Hence, we’re very open to doing PPP models in India. We have a preference for acquiring and investing in brownfield assets, but are open to financing greenfield projects through platforms that have a base of brownfield assets. So, that’s for infrastructure. Then the other sector where we see tremendous opportunities and growth potential is the financial services sector, as reflected in our investments in Edelweiss. We are looking for some more opportunities in financial services. In addition, I would say the healthcare sector is one that we’re very interested in, although we are at a very early stage of our due diligence in this sector. Another area of interest is the consumer-related sector because of the tremendous growth rates of the middle class.

How about consumer internet ventures like e-commerce ? For instance, would you look at a Flipkart which has an appetite to absorb such large amounts of capital?

Globally, we have not been very focused on venture capital plays…I can’t comment on any specific company. But yes if it’s an established company and needs more than $100 million equity, and has strong growth and profitability, we would be very open to looking at it.

You said that you’re looking at something in the financial services space. Can you explain?

At this point, we are very open. We are looking at both banks and NBFCs (non-banking finance companies), including insurance companies. The insurance industry is one we like very much, as it requires long-term funding and hence is a very good fit for a pension fund such as ours. We are looking at some of the banks and part of the attraction is they would require large investments.

Give us the good, bad and ugly of investing in India. What was your experience?

I would say overall our experience has been positive. I would say India should continue along the path of welcoming foreign investors; for example, by reducing the differentiation between foreign and local investors, increasing the percentage that foreign investors can own is something that’s very important. We see clarity and consistency in taxation issues as important. Many jurisdictions do give preference to the pension fund industry. If something can be done along these lines, obviously it makes the country more attractive. In addition, continue looking at the regulatory environment and making it easier for companies to invest and to grow.

Any chance of expanding the team in India?

We have made offers to two senior people to join Anita George who heads our office, and we have a plan to increase to six to eight senior people over the next two or three years.

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