CPPIB’s Mark Machin stresses on sanctity of contracts

Sanctity of contracts, regulations and taxation is an important issue for investors around the world, said Mark Machin, president and chief executive officer at Canada’s largest pension fund manager, Canada Pension Plan Investment Board (CPPIB), on Wednesday.

To a query from Mint about foreign investor concerns on recent developments, such as in Andhra Pradesh and more recently in Maharashtra, which have seen newly elected governments review contracts signed by their predecessors, Machin said while governments have the right to review these agreements, it only creates more risks for investors.

“Generally, the sanctity of contracts is an important issue around the world. It is a challenge around the world, when you have a change of government. Obviously, governments have the right to review lots of things when they come in, whether it’s at provincial, city or at the national level, but obviously, the more changes you make, the more risk you create and the more risk we have to price in the investments,” Machin said at a media roundtable in Mumbai.

While the recently elected government of Y.S. Jagan Mohan Reddy in Andhra Pradesh wanted to rework power purchase agreements signed by the previous government for wind and solar power, the newly-elected Shiv-Sena led Maharashtra government has said that it will review projects worth around ₹7 trillion awarded by the previous government, which includes a refinery and petrochemicals project and the Mumbai-Ahmedabad bullet train project.

“When we go into an investment, especially infrastructure investments, having the certainty of the regulatory regime, certainty of taxation and certainty of contracts over a long period of time is important,” said Machin.

“Our job is to figure out what the risks are and to ensure that we are being sufficiently compensated for those risks. The higher the risk, the lower the valuation that is acceptable,” he added.

CPPIB has a large exposure to the Indian renewable energy sector through its investment in ReNew Power Ltd, one of the country’s largest private renewable energy producers. Earlier this year, it also announced a partnership with the Piramal group to acquire operating renewable assets under an infrastructure investment trust (InvIT) structure.

Despite recent headwinds in the renewable energy space, the pension fund manager sees strong long-term value creation in the sector.

“Generally, we are seeing a lot of consolidation in the industry and we expect to see a rationalization in the industry. We think that, over time, us having a platform to develop renewable assets as well as an InvIT platform gives us the opportunity to play the whole consolidation story and which in the long run will create a lot of value,” said Vikram Gandhi, a senior adviser to CPPIB in India.

CPPIB’s current exposure to India stands at around Canadian $10.6 billion, with investments across public and private equity, real estate and infrastructure. In the last one year, the pension fund manager has also invested in technology companies such as ed-tech firm Byju’s and logistics service provider Delhivery.

CPPIB’s investments in India are only expected to grow, as under its long-term plans, the pension fund manager wants to increase its exposure to emerging markets to one-third of its total portfolio. Within emerging markets, China, India and Brazil are the top priorities for CPPIB.

In India, the investor is looking to add private debt investments to its portfolio.

“We have made the decision that we will be allocating capital to the private debt market in India. We will soon be making an announcement on that front. We see a lot of opportunities where businesses have a good asset base but there are issues on the liability side,” said Gandhi.