Ontario Teachers’ has a $200-billion plan to survive the trade war
|National Post 09 Oct 2019 at 18:06|
The chief investment officer of the Ontario Teachers’ Pension Plan (OTPP) has overseen the launch of a new tech-investing division, surpassed $200 billion in assets under management and inked partnerships with Google’s sister company Sidewalk Labs and Boston Consulting Group (BCG) Digital Ventures. He also launched the Teachers’ Innovation Platform (TIP), which invested in SpaceX in June.
Teachers’ is going all in on tech: the fund is overhauling its operations and those of its portfolio companies as it gears itself up for an economic downturn and a global trade war.
But it isn’t the only pension fund with a new tech focus. The Caisse de dépôt et placement du Québec and the Canada Pension Plan Investment Board (CPPIB) have new billion-dollar tech funds and plans to overhaul their investing strategies. CPPIB and the Ontario Municipal Employees Retirement System (OMERS) announced new tech-focused divisions coupled with San Francisco offices this year.
Yet Hindo, who has been in the CIO job for a little over a year, has a plan to beat the competition.
In an interview shortly after The Logic reported that the fund was planning a new incubator, Koru, he discussed why he wants to expand in India, why OTPP is focusing on private equity and infrastructure investments and his plan for diversifying Teachers’ $200-billion portfolio.
This interview has been edited for length and clarity.
How does Koru fit into Teachers’ overall strategy of increasing exposure in the tech space?
In private equity, infrastructure and natural resources, we have more than 90 private holdings across three diverse sets of sectors and geographies. The idea behind Koru is to help them do venture and to help them think about new businesses and new possibilities that heavily leverage technology to drive exceptional growth in revenue.
It will tackle early-stage venture in traditional economic sectors, which, frankly, will sooner or later be disrupted one way or the other through external forces. We’re trying to inculcate that entrepreneurial mindset, so we get to disrupt our own businesses before external forces disrupt us.
CPPIB and the Caisse recently launched internal reviews to look at the potential for disruption among their own companies. Teachers’ is partnering with an outside group to do the same. What’s the benefit of having BCG involved?
BCG Digital Ventures has entrepreneurs, software engineers, startup guys, a lot of data analysts. BCG Digital Ventures, we’ve gotten to know very well over the last couple of years. They’ve already stood up 90 startups or ventures by working with companies, and are doing it very successfully.
We always say one of our core values is partnering, and I believe we picked the right horse here. They’re a perfect partner for us, to help us inculcate that venture, that startup mentality, that entrepreneurial spirit inside our portfolio companies. I can’t really comment on what the other pension plans are doing.
Koru is early-stage venture, focusing on our holdings or private investments. TIP is late-stage venture and growth equity, but for new external investments.
When we put both of them together, they really cover the entire venture-risk spectrum. We have early-stage venture, but focusing on our own businesses — that’s where our edge is.
We really don’t have that much of an edge going in Silicon Valley, targeting Series A early-stage venture types. A, they’re not scalable. B, I’m not sure we’ve got the network to actually find out who are the entrepreneurs in their basement that are about to launch Series A. That’s not where we believe we can compete.
Both OMERS and CPPIB have opened San Francisco offices in the past year. Is Teachers’ interested?
We haven’t really landed on whether we need an office or not. I’m not sure the winning formula is only going to be in Silicon Valley. We see thriving technologies coming out of Asia and Europe, too, which is probably a market that is not as competed-out as you have in the States.
In September, Ontario Teachers’ said it would switch its focus from investing via limited partners in India to making direct investments in both infrastructure and private equity. Private equity and infrastructure seem to be focuses for a lot of your new initiatives: Sidewalk Infrastructure Partners, Koru, the Teachers’ Innovation Platform. Why?
They’ve always been areas of focus for us. We were one of the early adopters of going direct and internal in private assets: first in private equity, then we started infrastructure almost 17, 18 years ago.
I think the emphasis on India is that it is a vibrant emerging market with huge potential. We are going to invest significantly in our employees in Asia. I will be going with a senior investment team to India later this fall. We’re going to spend the whole week meeting with businesspeople, fund investors, our partners on the GP (general partner) side there and government officials.
Are there other parts of the world you’re planning trips to?
We have pretty excellent capabilities in Europe, based out of the London office, with, again, a great emphasis on both private equity and infrastructure, as well as high-conviction equities. We’re going to grow our capabilities in Europe, as well.
When we look 10 years out, we want to make sure we’re as global as we could be, so that we can scour the earth for the best opportunities from a risk-adjusted-return perspective and deploy capital accordingly. Canada is unfortunately too small a market for us.
In August, Teachers’ announced it had crossed $200 billion in net assets, and you said , “Over the last few years, we have been transitioning the asset mix to a more balanced approach from a risk perspective and … we increased our allocation to the fixed-income asset class.” Is that in response to the trade war and global volatility?
When we looked at the portfolio a few years ago, we realized that it doesn’t have enough fixed-income exposure. Why do we need fixed-income exposure? Two reasons.
First: income, because you clip coupons on government bonds. Second: from a diversification perspective, because fixed income typically does well in recessions or economic downturns.
We are in the 10th or 11th year of the economic expansion. It is getting a little long in the tooth in that cycle. You need fixed income. You need it because of a recession. You need it because of the trade war and tensions. By themselves, they’re having pressure on the manufacturing sector of the economy.
Big picture, what does success in tech look like for you five years from now?
First, we want to generate returns. And we want to make sure that from a capability perspective, we participate in the new trends that define the new economy.
They both serve that purpose, Koru and TIP. But for Koru specifically, we want to have about 15 to 20 portfolio ventures established that are hopefully commercially profitable.
On TIP, really, it’s about making sure that we understand technological disruption. That we’re participating in those new sectors — be it health or telecommunications or cleantech — that really define tomorrow’s economy.
It’s also about inculcating that digital, technological mindset, internally but also within portfolio companies.
Finally, tech is extremely important when it comes to attracting and retaining talent. Young talent want to come work for organizations that are vibrant, dynamic, thinking about technology, thinking about the future — whether it’s cleantech or sustainable investing.
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