Canada’s Machin Staying the Course with China Despite Tension

Geopolitical tension with Beijing isn’t changing Canada’s largest public pension fund ‘s investment decisions regarding China, according to Mark Machin, head of the $276 billion Canada Pension Plan Investment Board (CPPIB).

On December 1, Meng Whanzhou, chief financial officer of Huawei Technologies, was arrested in Canada, for extradition charges from the US. In response, China threatened Canada would face severe consequences if she was not immediately released.

Whanzhou was released on a $10 million bail on Tuesday. The US says the tech heiress allegedly covered up Huawei’s ties to a shell organization selling materials to Iran despite trade sanctions.

“There’s a lot of rhetoric always around these situations,” Machin told Reuters. “If we cut aside all of the rhetoric, I think China will take a mature, cool-headed attitude toward pragmatic negotiations, so we won’t get too much wild action.”

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

The Canada pension board has an 8% allocation to China and plans to raise its stakes in the coming years.

Machin, who has 20 years of investment banking experience in China and formerly headed the board’s Asia business, said the fund will continue “engaging and deploying” capital in the nation.

This week, Michael Kovrig, an employee with the International Crisis Group and former Canadian diplomat, was arrested in China. While it is not clear if this is a tit-for-tat over the Whanzhou incident, Kovrig’s detention has created speculation.

Tags: Canada, China, Mark Machin, Meng Whanzhou, Michael Kovrig

The $24.4 billion San Francisco Employees’ Retirement System (SFERS) has made an additional $205 million in commitments to private market investments on top of the more than $3 billion committed so far this year, shows a report to be presented to the system’s board Dec. 12.

The report by Chief Investment Officer William Coaker Jr. shows that the biggest investment was $55 million made to AnaCap Credit Opportunities IV, managed by AnaCap Financial Partners.

The fund will invest in credit opportunities across Europe, including residential and commercial mortgages, unsecured consumer loans, and other receivables. Regulatory filings show that the San Francisco system made one of the biggest commitments among the 13 investors in the $145 million fund.

The commitment was approved by the retirement board in closed session at the system’s Oct 10 meeting.

For more stories like this, sign up for the CIO Alert newsletter. 

A second commitment of $50 million was made to the WNG Aircraft Opportunities Fund II. The fund is managed by WNG Capital LLC, an aircraft operating lessor focused on investing in used commercial aircraft manufactured by Airbus and Boeing.

The investment was approved at the San Francisco board’s Sept. 12 meeting in closed session and the investment closed on Nov. 13, shows the SFERS report.

The last two commitments occurred at the pension board’s Nov. 14 meeting.

The board approved committing $50 million to PAG Asia III, a buyout fund managed by PAG, an Asian-based alternatives firms. A second commitment of $50 million was made to Main Post Growth Capital II, a buyout fund managed by Main Post Partners.

The San Francisco-based Main Point Partners says on its website that the fund will make $700 million in capital commitments and was over-subscribed.

The new commitments come as Coaker reports in his CIO report that for the first five months of the fiscal year beginning July 1, the pension system’s overall investment return was only 0.64%. “However, that is much better than a portfolio of 60% stocks and 40% bonds which lost -2.78% this fiscal year. A 70/30 stock/bond portfolio has declined in value by -3.19% the past five months,” he said.

Coaker said public equities declined 4.41% in the first five months of the fiscal year, “rocked by trade tensions between US and China.” He said the system’s private markets portfolio returns “have been very strong.”

He said in the July 1 to Nov. 30 period, private equity returned 9.26%, private credit 5.11%, and real assets, 3.77%.

Coaker has been restructuring the system’s portfolio, reducing equities while increasing private market and hedge fund portfolios.

Equities have dropped to 35.9% of the overall portfolio, down from 48.3% in October 2016, when the board approved asset allocation changes proposed by Coaker. Hedge funds, meanwhile, went up from 1.2% to 13.1% of the portfolio, private equity increased from 13.4% to 18.6%, and real assets, which includes real estate, went from 12% to 15.4%.

Tags: Bill Coaker, Pension, Private Credit, San Francisco Employees’ Retirement System (SFERS)