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La Caisse goes all out for Asia

La Caisse de dépôt et placement du Québec, a major direct investor globally, is shifting strategy for Asia as investment targets are unattainable, and launching a Sydney office this year.

Andreas Beroutsos, head of infrastructure and private equity investments outside of Quebec at La Caisse de Depot et Placement du Quebec, one of Canada’s biggest public institutional investors, announced yesterday at PEI Media’s global forum he was looking to hire fund managers to help him invest up to C$35 billion extra annually (€25.7 billion; $28.7billion) by 2019-2020.

The deployment targets of $110 billion compared to the existing $75 billion deployed annually, are so important that La Caisse, renowned for its direct investment practice –over 34 years, versus only 18 of investing through funds, and approximately two thirds of its’ portfolio- is having to change strategy for Asia, deemed by the senior investor to be the hardest market to crack.

“We’re very effective in North America and parts of Europe but we are not in Asia. I have been trying to crack this region but it is harder than Latin America, and certainly harder than Europe and America. I desperately need to be in Asia. It’s an extremely important part of the world,” said Beroutsos.

However, he warned that as imperative as was a greater and deeper presence in Asia, he still wouldn’t commit to funds and deals should they meet his expectations. He illustrated his point by saying he wouldn’t consider approaching India’s two best performing PE funds as they were still sub-par.

“I do not need to invest directly in Asia. If I get better IRRs by investing through asset managers, I’m happy to do so. However, I am not trying to build big teams like some of my peers who are setting up funds with management teams of up to 30-50 people. It may suit them but that isn’t what we like to do. We like to stay nimble and agile,” he asserted.

But observing the increasing competitiveness of the environment, the well-versed investment strategist who had sworn by direct investment and a team of 35 people’s efficiency, is having to reassess when dealing with the challenges inherent to the region, which include not only the strong popularity of the asset class and the fierce chase for yield, but also the need to be physically present in most parts.

“Whereas travelling is a fundamental part of what we do- and Asia is the region I travel the most often to- I would like to have to travel a bit less often in the region and to that end, we are about to open a Sydney office,” he revealed. “Both our recently opened Singapore office and Sydney will have three to four professionals.”

To illustrate his point on the chase of yield, Beroutsos cited the example of his purchase, alongside other investors led by buyout firm BC Partners, of PetSmart, the Phoenix-based pet store retailer, for $8.7 billion in which most co-investors, being US based borrowed way over their leverage tolerance threshold for what was judged to be extremely attractive yield: “Because US regulators only allow banks to borrow up to 6 times debt or Ebitda, most banks said ‘I’ll use my mulligan to do more than 6 times for this deal’. Eight weeks later we financed it at M plus 25. (16:40) it’s just crazy!”  

Adding to the competitiveness of the environment is the new visibility pervading the Asian market for bigger size ticket deals. It din’t use to be that way but now large deals are seen globally, and this is a challenge for everyone because with more visibility comes more challenge.

Reflecting on that observation, Beroutsos asked the crowd whether they thought that sometimes the point of differentiation may be to go to smaller deals.

Despite differentiation being at the heart of debates throughout the forum, Beroutsos’ question was not echoed with assertive answers.

When asked what the ideal asset manager-La Caisse relationship in Asia would be in comparison to the rest of the regions, Beroutsos said he would be interested in working with a handful of managers and a few corporates, not more than eight in total, and being considered as a counterparty but as a real partner. “I want to be brought in well ahead of a deal,” he stressed.