LAVCA spoke with Roberta Brzezinski, Managing Principal for CDPQ, to learn more about their growing allocations to Latin America and how they organize activities in terms of direct investing, co-investing, and investing through funds.
LAVCA: Please give some background on CDPQ. What is your exposure in terms of geography, sector, and stage?
Brzezinski: We are a leading Canadian pension fund with C$241 billion under management as of June 30, 2015, investing across asset classes and geographies.
LAVCA: How much of your portfolio is allocated to private equity and to emerging markets PE? What is your current exposure to Latin America specifically?
Brzezinski: Our exposure to private equity is approximately 14% of CDPQ’s overall portfolio, with 2/3 in infrastructure and direct investments. While we do not have a specific allocation for emerging markets PE, we have recently made several commitments to the space. Latin America is a current focus area for us, namely the large economies of Mexico, Brazil and Colombia. We have 4% of our overall exposure in these economies, mostly concentrated in public equities and real estate through our subsidiary Ivanhoe Cambridge. This year, we opened an office in Mexico City.
LAVCA: What markets and strategies are you looking at globally and why? How do you view private equity in Latin America compared with other emerging markets?
Brzezinski : We anticipate substantial growth to come from both the US market and growth (emerging) markets in the next period, and are focusing resources on and recruiting staff for these regions. Regarding private equity in Latin America, we are mostly focused on direct investments, but are also looking at managers with superior track records that meet or exceed developed-market counterparts.
LAVCA: How does CDPQ organize its activities and team in terms of direct investing, co-investing, and investing through funds?
Brzezinski: Most of our private equity exposure is through direct investments but we remain active in funds investing. For Latin America specifically, there are several relevant teams at CDPQ. Our Growth Markets team is responsible for country strategy in emerging markets, and is also involved in pre-screening, origination and development of both fund and direct investments in EM. Our Funds/coinvestment team makes all investment decisions on funds and coinvestments, while our direct PE team makes investment decisions on direct private equity deals. Other relevant teams include our infrastructure group and Ivanhoe Cambridge for infrastructure and real-estate platforms respectively.
LAVCA: In September, CDPQ announced a partnership with several local Mexican institutional investors to create CKD Infraestructura México, S.A. de C.V. (CKD IM). Please describe this co-investment platform.
Brzezinski: CDPQ and a consortium of Mexican institutional investors (including Mexico’s three largest Afores) joined under CKD Infraestructura México, S.A. de C.V. (CKD IM), a newly-created trust, announced in September the creation of a co-investment vehicle for infrastructure projects in Mexico. This partnership between leading Mexican financial institutions and a large international pension fund manager constitutes a first in North America. The new co-investment platform combines world-class infrastructure expertise with established local networks. The platform will invest up to MXN 35.1 billion (CAD 2.8 billion) over the next five years. The first joint investment is in toll roads and the consortium is now reviewing investments in several other sectors. We are enthusiastic about the Mexican long-term infrastructure opportunity and believe that a coinvestment approach with key local investors will yield attractive results from the points of view of both institutional investment and the Mexican population.
LAVCA: How do you determine whether to invest in a global fund versus a regional or country-specific fund? What are the most important factors you consider/characteristics you look for when selecting fund managers?
Brzezinski: For equity and private equity in most emerging markets, our current view is that regionally-focused managers have the best combination of deep local knowledge and regional diversification.
Given our size and focus on direct investments, we are not in the habit of making “plain vanilla” private equity commitments, and have a top-down, proactive approach to manager relationships.
LAVCA: How does CDPQ’s portfolio look today? How does that compare to allocations historically and how do you expect it to shift over the next 3-5 years?
Brzezinski: Our EM portfolio is currently more weighted towards listed equities than is our worldwide portfolio. In the next 3-5 years, we will be focusing on increasing our private equity, infrastructure and real estate exposure in growth markets to align our growth markets asset allocation more closely with our global allocation. Therefore, you can expect to see a lot more of us in Latin America.