Manager of Canada’s public pension plan bullish on Brazil power and water sector, CEO says

By Luciana Magalhaes

SAO PAULO, Aug 26 (Reuters) - After nearly two decades in Latin America, the Canada Pension Plan's managers still see room to expand in the region and especially Brazil, where they believe a booming clean energy sector and water concessions offer long-term opportunity.

CPP Investments, the public pension plan's asset manager, has about C$36 billion ($26.71 billion) under management in Latin America, or about 5% of its global portfolio, in sectors from electric utilities and sanitation to real estate, telecoms and logistics.

Although the world's seventh largest pension fund has no geographical targets, Chief Executive John Graham told Reuters in a rare interview he expects the region's share of the portfolio to hold steady or even rise.

"We look for markets where we believe we can scale assets, develop relationships and partnerships," Graham said at CPP Investments' offices in the Sao Paulo financial district on Friday.

Brazil accounts for nearly half of the fund's investments in Latin America. Among the key assets is Auren Energia, a top power generator and a major player in energy trading that CPP formed in partnership with Brazilian investment holding company Votorantim.

"I would say, globally, the energy transition is probably one of the trends for the past three or four years that we've been most excited about," Graham said.

Abundant hydroelectric resources and wind and solar power potential have made Brazil a regional leader for renewable energy, despite growing pains in some areas where generation has outstripped the national grid's capacity.

Brazil is also advancing toward universal water and sewage treatment, with many state governments opening public utilities to private investment and control, attracting attention from CPP and others.

"This is a sector that is going through an important transformation, from being state owned to going to the hands of sophisticated private operators," said Ricardo Szlejf, head of Latin America infrastructure at CPP Investments.

The fund is majority shareholder of water and sewage operator Igua Saneamento and has a stake in Equatorial Energia, the lead investor in the privatization of Sao Paulo's Sabesp, one of the largest water and sewage utilities in the world.

CPP Investments also made a direct investment in Sabesp, underscoring its interest in the sector, which offers stable and predictable cash flows, crucial for pension funds aiming to generate sustainable returns over decades.

As part of its rapid expansion, the fund has diversified across the globe, motivating its 2006 entry into Latin America, which Graham says has paid off.

CPP Investments recently reported a 10-year annualized net return of 9.1%, and Latin America has performed nearly in line with the global portfolio, in Canadian dollars, he said.

"I think what has gone well is being patient, having flexible capital and a long-term perspective," Graham said, adding that the fund has also leaned heavily on its local team, currently 36 employees in Sao Paulo. ($1 = 1.3478 Canadian dollars) (Reporting by Luciana Magalhaes; Editing by Brad Haynes and Cynthia Osterman)