Pension funds used to invest exclusively in sovereign bonds. These days, they go for zombie reruns.
Canada Pension Plan Investment Board (CPPIB), the manager of more than C$264 billion of assets, this year purchased an 18 percent stake in a company that owns and distributes film and television shows, including The Walking Dead. It was one of the more creative investments of Mark Wiseman’s tenure of as chief executive of CPPIB. Not that anyone should be questioning his acumen. CPPIB earned a greater return on investment than Warren Buffett's Berkshire Hathaway in the most recent fiscal year.
By now, students of international development are beside themselves. Zombies! Everyone knows the need for infrastructure in poorer countries is immense. Asia alone needs $8 trillion a year in infrastructure investment between now and 2020 to close the gap with the richer world. Everyone also knows that long-term investors such as pension funds are prime candidates to put up the money for all those roads, ports, hospitals and water treatment plants. So why is CPPIB plowing hundreds of millions of dollars into B-grade visual entertainment?
Here’s why: too many governments want the pension funds to build the infrastructure. That’s more risk than Wiseman is willing to take on. “We build spreadsheets, not roads,” he said during an interaction with journalists in Mumbai last month. Wiseman said he and other long-term investors are being presented with too many “greenfield” projects. They want “brownfield” opportunities; structures that already exist and aregenerating cash. “We are much happier paying up for an asset that is built, constructed, de-risked and seasoned,” Wiseman said. “In fact, we would pay a premium for it.” That’s not bravado. CPPIB bought a Toronto toll highway for “substantially” more than what it cost to build it because the investment board’s leaders had a decade of usage data with which to work. The data gave them comfort they could earn a return on their investment.
Infrastructure is one of the more pressing development issues of the moment. No international gathering of finance officials is complete without a panel discussion on the subject. That makes the observations of a man who controls one of the world’s bigger piles of long-term cash highly relevant. We don’t always hear from these guys directly.
Wiseman cares about the subject. I asked him why fund managers complain about a lack of investment opportunities even as institutions such as the World Bank and the Asian Development Bank talk nonstop about the enormity of the need. The question brought a lengthy and impassioned response. Wiseman said his time is too often wasted on smallish projects. The bigger pension, sovereign-wealth and private-equity funds need to make similarly large investments to generate growth. “For us to invest in a hospital, one building, one small project doesn’t make a lot of sense,” he said. “We need scale. We are looking to deploy $500-million to $1-billion minimum per project.” To be sure, CPPIB doesn’t always spend that much. But you get the idea. For Wiseman and those like him, it’s go big or don’t go at all.
The third issue for long-term investors is governance. Wiseman was in India to mark the opening of CPPIB’s sixth office outside of Toronto. (The others: Hong Kong, London, Luxembourg, New York and Sao Paulo.) India’s government last month boasted about the country's 12-point move up the World Bank’s ease-of-doing business rankings. The jump placed the country in the 130th spot. “There is an awful lot that needs to be done,” Wiseman said of India. The regulatory system is a thicket, the judicial system is slow, and corruption remains a concern. “Governments around the world have to understand that there is a market for capital,” Wiseman said. “We can invest in Indiana or we can invest in India. We have that choice everyday.”