Canada Pension Plan Investment Board and Export Development Canada are making major bets on Latin America – despite turmoil in emerging markets and steep drops in South American markets in recent months.
CPPIB will announce Wednesday that it is opening an office in Brazil, becoming the first Canadian pension plan to have permanent staff on the ground in Latin America.
Also Wednesday, EDC, the federal government’s export lender, will open an office in Bogota to help Canadian companies tap a coming infrastructure boom in Colombia.
CPPIB chief executive officer Mark Wiseman said the fund is not deterred by recent market upheavals and currency devaluations; he still believes in the long-term potential of key markets such as Brazil and Chile.
“If you have a long-term view and you understand the dynamic of what’s happening – including the demographic dynamic and the expansion of free market economies in those five countries – now is absolutely the right time to be there to establish that long-term presence in the region.”
The recent market turmoil obscures a sustained economic turnaround in Colombia, which is stable, growing steadily and poised to invest as much $55-billion (U.S.) by 2021 in roads, ports, airports, subways and other projects, said Todd Winterhalt, EDC’s vice-president of international business development.
“In Colombia we see an economy that has weathered the ups and downs really well, averaging well over 4 per cent [a year] growth,” he said from Bogota. “Now is essentially the moment to get here, to get in on the ground, and to get in while the going is good before this market really takes off.”
Canadian companies are well positioned to take advantage thanks to the 2011 free-trade agreement between the two countries, a recent tax treaty and diminished security concerns, he pointed out. Colombia is becoming an important hub for the Andes region and Canada is already the fifth largest foreign investor in the country, with significant mining and oil-and-gas projects. Bogota is the EDC’s seventh location in Latin America; it has offices in Mexico, Brazil, Chile and Peru.
CPPIB has $5-billion of investments in Latin America, including real estate and infrastructure holdings, which is enough “critical mass” to build a bigger portfolio with staff on the ground, Mr. Wiseman said.
CPPIB’s office will be in Sao Paulo, which is Brazil’s biggest financial centre, and will open in April with an initial staff of three people that will grow to 12 within several months. The pension fund has offices in London and Hong Kong, and opened a new office in New York in January. “Really, the missing piece in terms of regional coverage was having a presence in Latin America,” Mr. Wiseman said.
A regional office makes it easier to oversee existing holdings and helps to build contacts that can lead to new deals, Mr. Wiseman said. CPPIB has also found branch offices help prevent investing mistakes because local employees have a better understanding of local people and market conditions.
“I view it as a risk mitigation function,” Mr. Wiseman said. “It allows us to be closer to the investments we’ve already made, monitor those investments and joint ventures we’ve entered into, and have access to information in the local language in a way that ensures that we are less likely to make a mistake in terms of an investment or in choosing a partner in the region.”
Staff in Sao Paulo will focus primarily on investments in five key markets that CPPIB has targeted for growth: Brazil, Chile, Colombia, Peru and Mexico, which Mr. Wiseman says are the five strongest economies in the region. The fund does not have large direct holdings in volatile countries such as Argentina and Venezuela, he said.
“I think we are perhaps a little bit more global a little bit earlier than some of the other Canadian [pension] funds, but I think it’s fair to say most of the Canadian funds are headed in a similar direction. It’s the nature of where the world is today.”