La Caisse goes all out for Asia

Andreas Beroutsos, head of infrastructure and private equity investments outside Québec at La Caisse de dépôt et placement du Québec (La Caisse), said at a recent PEI Media event that the institution was looking to hire fund managers to help it invest up to C$35 billion annually (€25.7 billion; $28.7billion) in Asian private equity, infrastructure and real estate by 2019-2020.

This ambitious target, which compares to the existing $75 billion La Caisse currently deploys, has pushed it to open a Singapore office in October 2014 and prepare the launch of a base in Sydney later this year. Yet Beroutsos deemed Asia the hardest market to enter, by far.

“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.”

However, for Edouard Merette, managing director Asia Pacific at La Caisse, such moves are in continuity with the institution's current vision. “It’s building on an old strategy and accelerating it because we believe there is an opportunity to increase our exposure in emerging markets all over the world. La Caisse has been partnering with asset managers and corporates in the past and we have been present in the region for a long time,” he said.

However, Beroutsos warned that as imperative as a greater and deeper presence in Asia was, he still wouldn’t commit to funds and deals that don't meet his expectations. He illustrated his point by saying he wouldn’t consider approaching India’s two best performing private equity funds as, according to him 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. We like to stay nimble and agile.”

But observing the increasing competitiveness of the environment, Beroutsos, who had sworn by direct investment and a team of 35 people’s efficiency to handle global investment volumes, has had to reassess when dealing with the challenges inherent to the region – namely the strong popularity of the asset class and the fierce chase for yield.

“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 said. “Both our recently opened Singapore office and Sydney will have three to four professionals.”

To illustrate his point on the chase for yield, the investment strategist cited the example of his $8.7 billion purchase, alongside other investors led by buyout firm BC Partners, of PetSmart, a Phoenix-based pet store retailer. Most co-investors in the deal, being US-based, borrowed way over their leverage tolerance threshold to gain access to what was judged to be extremely attractive yield: “Because US regulators only allow banks to borrow up to six times debt or Ebitda, most banks said ‘I’ll use my mulligan to do more than six times, which is $6 billion at M400. Four weeks later we financed it at M+325. It’s just crazy!.”

Merette said huge pools of capital were chasing few yield-generating assets in the infrastructure space too – but noted that in that respect Asia was no different to other regions.

Beroutsos pointed out that greater visibility on big-ticket deals was making competition even tougher across Asian markets. “It didn’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 challenges.”

Reflecting on that observation, Beroutsos questioned whether sometimes the point of differentiation may be to go to smaller deals.

When asked how the ideal investor-fund manager relationship in Asia would be in comparison to the rest of the regions, Beroutsos said he would be interested in working with no more than eight managers and a few corporates, which should consider La Caisse less as a counterparty than a real partner. “I want to be brought in well ahead of a deal,” he stressed.

Merette, on his part, said the institution was very selective in its search for partners. “We are looking for institutions with a good reputation and an excellent understanding of the market they operate in, and which share our values, our time horizon, investment approach, and business practices. Choosing the right partner is paramount to our success and that is how we are going to approach all the markets we are looking at.”

It is still early days to say which markets are more fitting La Caisse’s strategies or which segments it will consider investing in, according to Merette. “We will be looking at opportunities based on the narrative opportunity both from a returns standpoint and a prices standpoint, therefore yield. It could be in an area we hadn’t suspected, based on the people we will be building these relationships with.”