CPPIB investment in grocery delivery firm Flipkart reaffirms Asia strategy, despite controversy

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.

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.

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.

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.

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.

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.

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.”

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.

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.”