What are the top tips for investing in emerging markets? Hear from Roberta Brzezinski on how the various economies are performing and the ways to manage potential risks.
How compelling is the case to invest in emerging markets today and how is this reflected in your current and future allocation plans?
Despite some recent vulnerability across the emerging markets universe, we remain optimistic about and committed to investing in our core markets, which include a number of fiscally solid large economies with depth in economic policy making. These include Mexico, Brazil, Colombia, India and China. To that end, we have expanded our operations across a number of our key markets. Today, we have teams and representatives on the ground in Singapore, Hong Kong, Delhi, Shanghai, Mexico City, and São Paulo. These include both country/regional generalists and sector specialists, who collaborate with CDPQ’s Montreal headquarters as well as with other offices in London, Paris, New York, and Sydney.
With a spotlight on Latin America, what is a potential commitment to the region competing against in your investment portfolio and how well does it fare when compared to other emerging markets?
We do not allocate by country or region. Instead, we evaluate each opportunity on the basis of absolute return, partner quality, and other key metrics. That being said, the largest Latin American markets (Mexico, Brazil and Colombia) are focus countries for us, and therefore we are actively investing and evaluating investments across the asset classes in those economies. In Latin America over the past three years, we have made over $1 billion in new commitments in infrastructure equity; committed to two regionally-focused private equity fund managers; made two illiquid fixed-income investments; and committed to a long-term real estate partnership. Our current pipeline of direct private equity, infrastructure, and illiquid fixed-income opportunities is active and substantial. So all in all, I would say that Latin America is a fruitful area of activity for us.
How do you minimise risks when investing in emerging markets or Latin America specifically?
CDPQ takes a partnership approach to its investments worldwide, which allows us to minimize execution risk by co-investing with knowledgeable market leaders. We believe that this approach is well suited to emerging markets. At the same time, our lengthy investment experience and long-term approach to investing allow us to be a reliable and knowledgeable partner. As we have expanded into emerging markets including Latin America, we have focused on identifying local partners with whom we can work across asset classes. These partners may be regional leaders, or global players with experience in a particular country. We took the time to develop mutually beneficial relationships with those partners, and now we are executing a number of promising transactions with them.
As a route to invest in emerging economies, how does the attractiveness of private equity, private debt, venture capital and infrastructure compare?
As mentioned, CDPQ takes a pan-asset-class approach to its investments worldwide. We invest in all major asset classes, including direct private equity investments; private equity funds; direct infrastructure equity investments; illiquid fixed income investments; liquid investments, including listed equities and debt instruments; and real estate, through our real estate arm Ivanhoe Cambridge. On the illiquid side, we believe that our partnership/ patient capital approach can yield strong returns in each of our focus countries when investing in long-term infrastructure equity and debt, as well as in direct private equity and fund investment. Furthermore, we have recruited a number of regional specialists with significant backgrounds in emerging markets private equity, infrastructure, and fixed income. Regarding venture capital, we have recently made a small commitment to an emerging markets-focused investment group, but we do not currently have a dedicated team looking at emerging markets-focused venture capital.
How do you ensure of responsible investments in emerging markets, in terms of ESG and more?
In 2017, we made a commitment to reduce our carbon footprint by 25% in 2025. To achieve that goal, we have committed to invest in companies with a low carbon footprint, with carbon now part of our risk criteria when making investment decisions, and to divest from holdings with a high carbon footprint. Last year, we also made an allocation to an impact investment fund.
Under the spotlight: Roberta Brzezinski
Roberta joined CDPQ Washington, a subsidiary of Caisse de dépôt et placement du Québec (CDPQ), in January 2015. Her role includes deploying CDPQ’s growth markets investment strategy and seeking business opportunities in growth markets, with current focus on private equity and fixed income opportunities in Latin America.