China | Pension360

Canada Pension Chief Talks Profitable Alibaba Investment

The chief executive of the Canada Pension Plan Investment Board (CPPIB) talked with the Financial Post this week about the Board’s investment in Alibaba in 2011.

At the time, Alibaba was an unknown tech company in China. A few years later, the company’s initial public offering was the largest in history.

But CPPIB CEO Mark Wiseman says the investment was no “quick win”.

He told the Financial Post:

The US$314.5-million investment, while very profitable, happened because of a decision more than five years earlier to put “feet on the ground in Asia” by opening an office in Hong Kong in 2008, he said Monday.

“Our team in Hong Kong was able to educate our investment committee and others back here in Toronto, so that when the [initial] investment opportunity finally came to fruition in 2011, we were in a position to understand the business,” Mr. Wiseman said in an interview.

“They understood the Chinese market and the Chinese consumer. They had real experience in the region and understood both the similarities and, importantly, the differences between the way that retailing and trade are done in China [and how it’s done in North America].”

CPPIB subsequently increased its stake in Alibaba in 2012 and again through the IPO, and the combined stake is now worth “substantially more” than the cost base.

The CPPIB has a total of $314.5 million invested in Alibaba.

Photo by Charles Chan via Flickr CC License

Chart: Institutional Investors Rank the Biggest Risks of 2015

Here’s a graphic that shows what institutional investors believe to be the biggest potential risks to investment returns in 2015.

Seventeen percent of institutional investors are most worried about geopolitical risks. Meanwhile, 13 percent and 12 percent of investors, respectively, think slow growth in Europe and China pose the biggest risk to their 2015 returns.

Chart credit: Natixis “Under Pressure” report

China to Overhaul Pension System; Government Employees to Contribute More

China is planning a major overhaul of its pension system after complaints of unfair wealth distribution and favoritism towards government employees.

Reported by Bloomberg:

China will abolish a dual-track pension system that favors government employees and discriminates against others to create a fairer retirement-savings system.

Under existing rules, about 37 million employees with government agencies, communist organs and public institutions don’t have to contribute anything to their pension savings, with the government paying pensions of about 90 percent of their pre-retirement salaries. Those employed by businesses from banks to bakeries must contribute 8 percent of their salary to pension accounts, on top of 20 percent of their wages that’s paid by employers to a pooled pension fund. On average, private retirees end up with 40 percent of their working pay.

As the system has increasingly become a source of resentment among the public, Vice Premier Ma Kai said yesterday that the State Council and the ruling Politburo have agreed to implement a “unified” pension system, and government employees will have to contribute to their own pension accounts, the official Xinhua News Agency reported.

The report didn’t provide a timetable for the reforms.

Approximately 338 million people are covered by China’s pension system.

Photo by Jonathan Kos-Read via Flickr CC License

New Jersey Pension Shifts $100 Million From U.S. to Asian Real Estate

The New Jersey Division of Investment, the arm of the state government that manages and invests pension assets, is pulling $100 million out of U.S. real estate and shifting the money to a fund that invests in Asian real estate.

The fund will invest in real estate in China, Japan, Singapore and Australia. More details from IPE Real Estate:

The New Jersey Division of Investment is pulling capital out of two core US real estate funds and redeploying it into an Asia-Pacific property fund.

New Jersey is redeeming all of its $91m (€73.2m) interest in the AEW Core Property Trust as well as a partial redemption from its $400m interest in the CT High Grade Partners II fund.

The pension fund has approved a $100m commitment to SC Investment Management’s Real Estate Capital Asia Partners I, which will be funded by the two redemptions.

Following a recent recovery in US real estate prices, New Jersey decided to rotate capital from existing managers to new opportunities. Over the past several months, the pension fund has been evaluating core investments it made between 2006 to 2008.

New Jersey is seeking to capitalise on sustained occupier and investor demand in Asia Pacific, driven by long-term demographic and urbanisation trends in the region.

[…]

SC Invesmtent is targeting a 9% return by investing in undervalued, under-managed and distressed properties where value creation opportunities exist.

According to New Jersey, SC Investment has been a consistent top-quartile performer. In the manager’s previous investment funds, deals generated a 35% gross IRR and 2.1x return, with proceeds of $600m.

The Division of Investment manages $81.22 billion in pension assets.