While turmoil has engulfed Canadian relations with India over the assassination of Khalistan separatist Hardeep Singh Nijjar, Canadian public pension funds (PPFs) are unlikely to pull their investments or press their brakes having invested approximately US$21 billion in Indian private markets over the past decade.
Road and renewables infrastructure, as well as office real estate and venture capital, are all in the sights of Canada’s PPFs, which have resolutely stayed invested in India despite higher risks. A motivating factor is their need to shift capital out of China into other emerging markets with less geopolitical risk exposure and greater growth potential. The assets the Canadians have invested in have a long duration and cannot be easily liquidated, so it is unlikely they will divest over a brief diplomatic spat. At the same time, it is not in India’s interests to chase them away, as they have underpinned the government’s investment drive in infrastructure as well as supported some of the most significant startups – particularly as these funds are politically at arm’s length from the government and could not be seen as having any diplomatic leverage. Canadian funds are also keen on co-investments, either with each other or with sovereign wealth funds, particularly Singapore’s GIC and Abu Dhabi’s ADIA.
India plans to install 450GW of renewable energy capacity by 2030 and is hungry for inward investment, relying heavily on the patient capital of global sovereign wealth funds and public pension funds, such as Canada’s weighty investors. Currently, renewable generation is at least 160GW, suggesting an average of more than 40GW needs to be added every year to reach the end-decade target. Highways are another target of Canadian investment, helping to support the government’s US$445 billion investment target for the road sector under its National Infrastructure Pipeline (NIP).
By far the biggest investor among Canada’s state-owned investors is the federal pension fund CPP Investments, which has notched up US$13.5 billion of direct investments in private equity and real assets over the past decade, accounting for 58% of the total capital deployed. The Canadian fund says that “the country is core to our global, long-term investment strategy.” In CPP’s latest annual report, it states that 4% of its portfolio is denominated in Indian rupees, which suggests the fund’s investments total more than US$17 billion, although it reportedly holds up to INR1.77 trillion (US$21 billion) in Indian assets. Its six biggest public equity positions - Zomato, Paytm, Nykaa, Delhivery, Indus Towers and Kotak Mahindra Bank – are worth around US$2 billion.
CPP was the first Canadian PPF to enter into the Indian market and has significant investments in Indian burgeoning renewables sector. In March, acquired Goldman Sachs’ stake in ReNew Power for US$268 million, giving it a 51.6% share of the generator, which currently has 7.7GW of operational solar and wind capacity. The company listed on Nasdaq via a SPAC, RMG Acquisition Corp II, in August 2022. The Canadian fund first invested in ReNew in 2018 when it snapped up shares held by the Asian Development Bank.
CPP also backs the National Highways Infra Trust, an infrastructure investment trust (InvIT) sponsored by the National Highways Authority of India (NHAI). The tranches of equity investment it has funnelled into the InvIT total around US$244 million. In April, CPP and OMERS invested INR43.2 billion (US$530 million) in the Indinfravit Trust, which owns and operates Indian road assets and is majority owned by the two investors. The investment funded the acquisition of a portfolio of five road assets from Brookfield at an enterprise valuation of US$1.2 billion.
Azure Power with a 7.2GW portfolio has also won Canadian backing from CDPQ and OMERS, with stakes of 53.4% and 21.4%, respectively. This month, the solar-focused energy company began seeking a US$700 million capital raise to finance its ambitious capacity expansion plans, potentially leading to more investment by the Canadian backers. It is more reliant than ever on Canadian PPFs, now it is embroiled in an investigation into alleged “corrupt activities” in connection with one of its projects. Its shares lost more than 80% of their value since a whistleblower’s disclosure and in July NYSE suspended trading in its stock.
The Québecois PPF CDPQ is the second biggest Canadian state-owned investor in India with more than US$5 billion. In February this year, Ivanhoé Cambridge – the real estate arm of Canadian pension fund CDPQ – and Singaporean state owned investor Temasek’s Mapletree established a INR150 billion (US$1.8 billion) tech-focused Indian real estate platform, representing a landmark leap forward in foreign real estate investment in India. In what is expected to become the largest investment platforms in the Indian real estate office sector, properties and projects have already been identified in the bid to establish high-quality offices in the major cities throughout India. Last year, Ivanhoé Cambridge partnered with real estate firm Lodha and Bain Capital to build a US$1 billion platform of logistics and light industrial parks, as well as in-city fulfillment centers, with each partner having a third equity interest.
Ivanhoé has a C$7 billion (US$5.2 billion) Asia-Pacific portfolio, representing around 8% of its total AUM, with a mandate to develop and invest in high-quality properties, projects and companies that are shaping the urban fabric of cities around the world. It aims to double its allocation to the region in the medium-term.
Having directly invested around US$1.8 billion in infrastructure and private equity, Ontario Teachers (OTPP) established a new office in India last year, as it ramps up its exposure to the South Asian heavyweight in emerging markets. It is one of the backers of the National Investment and Infrastructure Fund (NIIF), a quasi-SWF established by the Indian government, is 49% owned by the Indian government with the rest of the equity split between foreign state-owned investors as well as domestic institutional investors.
Last year, OTPP teamed up with the Mahindra Group to form a strategic partnership that capitalizes on the growing renewables opportunity in India. OTPP acquired a 30% equity stake in Mahindra Susten at an equity value of INR23.7 billion (US$300 million). The proposed transaction also envisages the setting up an InvIT to comprise renewable power assets seeded by Mahindra Susten with operational capacity of around 1.54GW. OTPP also committed to deploy an additional US$450 million into the business and the InvIT.
The level of Canadian commitment to the Indian economy is unlikely to be undone by the current diplomatic incident and for all the diplomatic protests, the Union government will continue to see Canada’s PPFs as important backers for economic development.