Alberta Investment Management Corp., Edmonton, will increase its investment exposure to Asia-Pacific through its newly opened Singapore office, a top executives said.
"We have a lot of appetite to grow in Asia, given our proportionate underrepresentation here," said Evan Siddall, CEO at AIMCo, during a media roundtable in Singapore on Sept. 12. "But we don't have a limit or a target."
The firm currently has 3.8% of its portfolio allocated to Asia and 2.5% in Australia. Outside of APAC, it has 42.9% of its portfolio allocated to Canada, 33.8% to the U.S., 6.2% to Europe, 4.9% to the U.K. and 5.9% to the rest of the world.
The office marks the firm's first in Asia, and sixth globally. It has offices in Edmonton, Calgary and Toronto in Canada, and London and Luxembourg in Europe. AIMCo manages C$164 billion ($120.2 billion) in assets on behalf of 17 pension, endowment and government funds in Alberta.
The Singapore office currently has four employees, with room to grow to over 20, the executives said.
Within Asia, most of its investments are in infrastructure, but the firm is relatively agnostic about the asset classes and markets that it plans to expand to.
The developed economies are easier to work with because AIMCo is familiar with them and they have good market structures in place, but there are opportunities in other countries in the region too, said Kevin Bong, senior managing director, chief investment strategist and head of Singapore, in an interview.
For instance, within emerging markets, there is potential in Southeast Asia, which has been affected by China Plus One strategies — where companies diversify their manufacturing hubs beyond China — in a positive way, he said. The firm is open to all asset classes but has spotted opportunity particularly in the private markets.
"We have private equity partners who look into the (Southeast Asian) region quite a bit as well … That's probably where we would start — through partners, possibly through private markets, funds, co-investments. Individual deals — we hope to do a lot more of that over time. But again, we need people here first to build the network," Bong said.
Market access to emerging markets is a challenge, and the firm is working on finding the right partners to help them, he said.
"Part of the whole reason why we have the office here and hopefully have more of our teams spend time here … is to get to know these markets a lot better," he added.
The firm has also been working on "some interesting infrastructure-related opportunities in India and some innovative approaches" but it has taken time and requires patience to build relationships in the country, said Chief Investment Officer Marlene Puffer during the same interview.
"There's a lot of developing regulatory environment that's evolving, and so we need to tread carefully to make sure that legal structures and all the complexities as various aspects of infrastructure are evolving," she explained.
"When you're looking at long-term assets, and you want to make sure that your returns are going to be commensurate with the risk profile. You need to be diligent in making sure the risk profile is as managed as possible," she added.
The firm has a small exposure to Indian equities that are commensurate with passive exposures, she said. "We haven't done a whole lot in terms of active fundamentals there yet, but it's on the radar."
In terms of developed economies in Asia, Japan has the capacity for growth, Puffer and Bong agreed. "I'd say we're underinvested in Japan, and I would put Japan on the list of countries that are reflecting some solid opportunity sets. Japanese growth has been stronger than I think many anticipated over the last number of years," Puffer said.
She added that AIMCo has some tolerance for currency exposure in Asia. "Certain currencies can play a role in tail risk hedging, and so we view our USD exposure as a safe haven currency and the yen plays some of that role as well," she said. "So it's where we may have some tolerance for currency exposure that is a little different from other markets … It tends to be correlated as a diversifier for us."
Fixed income in Japan is not a priority at the moment because there are yield opportunities elsewhere in the world, but there is potential in Japanese equities, they said.
Japanese equities are no more expensive than anywhere else in the world, Bong said. "You could talk about multiples in China, India — they are way more expensive than they are in Japan. Equity multiples in the U.S. are incredibly expensive as well … It will be a relative value thing, and I don't think we would even think about it from an index perspective. We would really look at individual companies," he said.
In Australia, the firm currently has exposure to renewable resources, for instance in timberland and farmlands, but it is looking for opportunities in more sectors and asset classes, and to diversify into other areas of Asia-Pacific.
"That's where our familiarity has begun. But we do have quite a lot of concentration in Australia today. So we're here to diversify further," Puffer said.
Canadian pension funds' investments in China have faced increased pressure amid a deteriorating relationship between Canada and China. In May, two pension funds, Ontario Teachers' Pension Plan, Toronto, and British Columbia Investment Management Corp., Victoria, told a parliamentary committee that they would pause making further investments in China.
In June, Caisse de Depot et Placement du Quebec, Montreal, said it had suspended making private investments in China and that it would shut down its office in Shanghai.
AIMCo is aware of these challenges and that there is "a high hurdle" to invest in China at the moment, Puffer said.
"It leaves us, as Evan said earlier, curious and preparing for the longer term, but in the near term, our… exposure is modest exposure via some public market exposures, a very small amount in indirect exposure in the private markets, and it's a high hurdle to invest at this time," she said.
The fund is curious about how to access the opportunity set in the growth of the Chinese economy through investments outside of China, she explained. For instance, they are looking at the evolution of supply chains and how it impacts companies in the region in terms of both potential opportunity and risk profile.
"We need to remain knowledgeable and curious about the markets there and the economy there because it certainly affects our investments, both directly and indirectly," she said.
