Caisse de Dépôt et Placement du Québec (CDPQ), Canada’s second largest pension fund, has made investments worth $3 billion in India— both directly and indirectly— through private equity funds.
CDPQ, which set up its India office in March, has announced $850-million capital for power projects in India, and investments in Edelweiss Financial Services Ltd and in TVS Logistics Services Ltd.
In an interview, Anita Marangoly George, managing director (South Asia) at CDPQ, comments on the present scenario in India and the pension fund’s investment plans.
Limited partners (LPs) have complained about under-performance of Indian PE and have decided to do investments directly. Do you believe direct investment is a good option for large investors like CDPQ?
Weak PE returns is not an issue that is intrinsic to India alone and is not the sole reason why the LPs are interested in direct investments.
There is a renewed interest in the way LPs are looking at the India story which is driven by the fundamentals of the Indian economy. As LPs get to know the opportunities and the partners in different sectors, they are more comfortable investing directly.
Other reasons could include economic considerations on saving carry (carried interest) and fees; better governance in terms of flexibility and exercising more control on investment decisions and how they deploy capital; and scaling up internal capabilities are just a few reasons why the LPs are going the direct route. For long-term investors like CDPQ, it is also important to consider the timing of entering a new market and the exit where institutional investors may have a different time horizon relative to PE funds. Last, but not the least, in a long-term relationship, the quality of the local partner is vital to us.
How does CDPQ see India as an investment destination as compared to the other Asian markets?
India’s story is ultimately not just about the growth rates, it’s about potential that rests on economic fundamentals. First, the labour force, it’s one of the most attractive in the world, young and growing at a remarkable rate. Over 10 million new entrants a year are expected over the next decade.
Second, India’s governance—no doubt, there is a new “tone on the top" on this issue and progress is being made. A stable and principled system of public and corporate governance is a prerequisite for investor confidence and for long-term, sustainable growth.
Third, India’s structural reforms that are gradually changing will make India a more competitive player in the global economy and better equip it for future growth.
Which sectors are attractive ones for CDPQ in India?
Thinking long-term, thinking like a business owner, are opportunities we believe are key. We are particularly keen on themes like financial services, renewables, real estate, healthcare, and transport and logistics. Fintech (financial technology) is reshaping the landscape of financial services—how they are delivered and who delivers them.
With renewables, we identify that India will need more power and has the opportunity to develop it in a way that keeps its cities liveable and potentially provide a competitive advantage.
Transportation and logistics is critical to create a common market —to create and build the transportation logistics capabilities required to move goods efficiently.
How do you see India’s growth in ICT sector? And potential for investments?
Information and Communications Technologies (ICT) is one of the fastest growing parts of India’s economy and the largest private employer in the country.
Over the next five years, it is estimated that at least 33% more citizens will gain access to the Internet, and the number of smartphone users will grow to 700 million or more by 2025, from 200 million last year. All of these open the door to a world of connectivity, knowledge and opportunity.
But what really matters is India’s long history of entrepreneurship and innovation. Today, India ranks as the second-most important ICT start-up hub in the world and ICT is remaking the global economy, disrupting businesses and business models every day. Which means India stands near the forefront of an industry with the power to drive change, create jobs and shape the future of business here and around the world.