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OTPP eyes distressed opportunities in China, India

The $130bn Canadian pension fund is optimistic that recent structural reforms in these two countries will unleash new sources of investment.

The Ontario Teachers’ Pension Plan is setting its sights on distressed opportunities in China and India, according to its director of alternatives Mark Katz.

“What we are starting to look at more carefully is distressed opportunities in China and India,” Katz said at the Private Debt Investor Asia Forum in Hong Kong on Thursday.

“Structural reforms in China and India such as real plans in terms of zombie companies, changes to the bankruptcy system and asset management companies are positive signs,” Katz added. “It’s definitely a good time to take a hard look at this space.”

However Katz notes that a big question mark in these markets is around enforcement, legal framework and regime. “I’d like to see some funds and direct lenders in these markets use those laws and see them work in practice.”

The Toronto-based pension giant, with C$171.4 billion ($129.4 billion; €117.3 billion) under management, allocates about a third of its portfolio to alternatives, of which 11 percent is in private equity, 11.2 percent in real estate, 5.8 percent in infrastructure, and 5.3 percent is in private debt, according to PEI data.

Katz explains that on the credit side, OTPP’s global investments range from private lending to distressed assets. “We are not looking for assets that are extremely cheap because that cheapness is warranted and that discount is appropriate because the fundamentals are so poor. What we’re looking to do is to buy assets ‘below fair market value’.”

“In China, you are starting to see attractive pricing in non-performing loans,” Katz adds. “The big question is whether that discount is truly warranted or whether you are able to capitalise on the opportunity of banks looking to get rid of loans at prices which are potentially below fair market value.”

When asked about fund manager selection, Katz says picking the right people is essential. “What’s key to us are platforms and teams that are robust enough not just for best-in-class origination and sourcing of opportunities but also for structuring deals appropriately, monitoring them going forward, and most important of all, demonstrating expertise.

“In any area of credit or lending we want to see teams that have been through cycles before and have successfully demonstrated a way out.”