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CPPIB's US$800-million Flipkart investment reaffirms Asia strategy, despite scrutiny – Financial Post

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CPPIB keen on Asia amid geopolitical unrest, controversy over Chinese investments, which have lost some of their shine

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The Canada Pension Plan Investment Board’s US$800-million investment in India’s Flipkart Group this week is more than a bet on the e-commerce grocery delivery company ahead of an expected IPO. It is also something of a statement that the investment manager for Canada’s national pension scheme is still keen on and active in Asia despite recent geopolitical unrest and controversy, particularly over its investments in China.

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The CPPIB fund’s allocation to Asia rose to more than a quarter of net assets last year, up from less than 18 per cent in 2017, and “China and India are critical” to the pension manager’s plan “to allocate up to one-third of the Fund in emerging markets by 2025,” said Agus Tandiono, managing director and head of fundamental equities in Asia for CPPIB.

But some have questioned the strategy at both the country and company level. Relations between the Canadian and Chinese governments have grown frosty since the arrest of Huawei executive Meng Wanzhou in Vancouver in 2018 at the behest of the United States, exacerbated by the subsequent detention of two Canadians in what many view as a retaliatory move.

At the same time, investments in China that once gave CPPIB bragging rights have lost some of their shine.

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A well-timed investment in China’s e-commerce company Alibaba paid off in 2014, at least on paper, when the company went public with a value of US$25 billion. But the fortunes of founder Jack Ma have taken a hit recently after public comments he made appeared to take aim at Chinese regulators. A planned US$35-billion initial public offering for Ant — a fintech company in which Alibaba and its key investors have a stake — was pulled last year. It could still go ahead, but analysts have pegged the value at about 60 per cent less than it was expected to fetch. Chinese regulators are also probing Alibaba as part of a wider crackdown on tech monopolies in that country.

Alibaba founder Jack Ma.
Alibaba founder Jack Ma. Photo by Elaine Thompson-Pool/Getty Images files

CPPIB’s investments in China alone represented around 11 per cent of the portfolio and were on track to increase to 20 per cent by 2025, according to a transcript of a parliamentary committee hearing last June.

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Senior executives of the Canadian pension faced hours of questions from members of the committee, including some pointed ones about its investments in China. Conservative member of parliament Michael Cooper, who was on the standing committee on finance at the time, asked CPPIB executives if they were worried about arbitrary regulatory or government decisions over corporate structure affecting their investments in China, including Alibaba. He also asked questions about Ant and its trouble making a U.S. acquisition due to national security concerns, and noted that other large pensions based in the United States had recently halted all investments in China.

CPPIB executives defended continued investment in China, stressing the importance of that country to the fund’s geographic diversification and the potential for returns in developing markets with a growing urban middle class.

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Just over a month later, though, the Canadian pension giant took a significant step to beef up its investment capabilities in India. Anuj Girotra, who had spent 12 years leading Capital Group’s private markets business in India, was hired to lead CPPIB’s efforts investing in public equities and companies on the cusp of going public there. While other executives on the team are based in Hong Kong, Girotra is based in Mumbai.

A Flipkart office in Bengaluru, India.
A Flipkart office in Bengaluru, India. Photo by Abhishek N. Chinnappa/Reuters files

Sources familiar with CPPIB’s strategy say his hiring helped lay the groundwork for the investment in Flipkart, a move big enough to dispel any notion of a retreat from the wider region, but that may also signal an evolution of their strategy.

“Asia is a diverse region with many different markets,” Tandiono told the Financial Post in an email. “Having on-the-ground presence and knowledgeable partners allow us to identify and pursue good investment opportunities.”

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With a major North American player like Walmart  — which has been gearing up to battle Amazon for global e-commerce market share — on board as Flipkart’s majority owner, the latest investment in this area has an added layer of reassurance for CPPiB.

The US$3.6-billion funding round was led by CPPIB, Walmart, SoftBank and GIC, and gives the online shopping and grocery delivery company a value of more than US$37 billion.

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The investment group also features some familiar names from past CPPIB funding transactions around the world. For example, the Canadian pension manager entered a joint venture with GIC in 2018 to acquire a blue-chip office building in Seoul for US$380 million. Japan’s SoftBank, meanwhile, was reportedly poised to sell its controlling stake in renewables business SB Energy to CPPIB for more than US$400 million, but that deal was called off in the spring.

“We’ve previously worked with several of the investors in the Flipkart transaction, across geographies and transactions,” Tandiono said.

“Partnership has been an important part of our global strategy.”

Financial Post

• Email: bshecter@nationalpost.com | Twitter:

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Canada Sets Plan to Merge Investment Regulators Into One Agency – Bloomberg

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Canada’s securities regulators plan to merge two industry groups that oversee financial advisers into a single organization, a move intended to address years of complaints about the overlapping roles and higher costs of the groups.

Provincial regulators published Tuesday a framework for how to combine the Investment Industry Regulatory Organization of Canada, which regulates investment advisory firms that sell a broad range of securities, with the Mutual Fund Dealers Association of Canada, which oversees firms that sell funds.

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Carlyle to Invest in Abrigo at $1 Billion-Plus Valuation – Bloomberg

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Abrigo, an Accel-KKR-backed software provider for financial institutions, has secured an investment from private equity firm Carlyle Group Inc.

The Austin, Texas-based company is valued at more than $1 billion after the investment, according to people with knowledge of the matter who asked not to be identified discussing private information.

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Canada plans to merge investment regulators into one agency – Financial Post

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Move aims to address years of complaints about the overlapping roles and high costs

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Canada’s securities regulators plan to merge two industry groups that oversee financial advisers into a single organization, a move intended to address years of complaints about the overlapping roles and higher costs of the groups.

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Provincial regulators published Tuesday a framework for how to combine the Investment Industry Regulatory Organization of Canada, which regulates investment advisory firms that sell a broad range of securities, with the Mutual Fund Dealers Association of Canada, which oversees firms that sell funds.

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They also plan to merge two existing investor protection funds into a new one that’s independent of the expanded regulatory body.

Among other things, IIROC and MFDA levy fines and other penalties on individual financial advisers who break the rules.

IIROC oversees about 175 firms, including full-service investment dealers such as BMO Nesbitt Burns Inc. and RBC Dominion Securities Inc., while the MFDA supervises about 90 mutual fund dealers, such as CIBC Securities Inc. and National Bank Investments Inc. Some financial firms are forced to be members of both agencies because their employees hold different licences for selling investment products.

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Combining the staffs of the two bodies “will be critical during the creation of the new self-regulatory organization and investor protection fund, and will be crucial to their future success,” Louis Morisset, the chair and president of Canadian Securities Administrators, said in a statement. The CSA is an umbrella group of Canada’s provincial securities watchdogs.

In late 2019, the CSA began studying the existing framework. It created a working committee to determine the structure of the new organization and oversee the integration of the two groups. The review prompted both the MFDA and IIROC to publish their own proposals.

The combination is aimed at saving costs for investment dealers while aligning and streamlining their processes, the CSA said. A majority of the new organization’s board members and its chairperson will be independent, and the group will be required to solicit CSA comment on its priorities, business plan and budget, according to a statement.

The CSA will also consider the possibility of incorporating additional registration categories into the newly minted entity.

Bloomberg.com

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