The speech below was delivered by Annesley Wallace, Executive Vice President and Global Head of OMERS Infrastructure, at Infralogic’s Asia-Pacific Summit in Singapore on 25 July 2022.
INTRODUCTION:
I am so pleased to be with you today to speak about OMERS and infrastructure in Asia Pacific.
It is an honour for my colleagues and me to kick off this fantastic event and share our genuine excitement as an investor committed to doing more across Pacific in light of the amazing opportunities that I am sure will be discussed at length over the course of the day.
In Asia Pacific, we have employees, offices and really great relationships, many here today.
Our office in Singapore, just around the corner, is three months shy of celebrating its fifth anniversary.
As you’ll hear in greater detail, we care deeply about learning from our local partners, teams, and experts - leveraging their expertise is critical to our process and the way we invest.
I will cover three important areas with you today and then leave some time towards the end for questions:
1. Who we are as an investment manager,
2. The macro-trends we see shaping opportunities in Asia,
3. Our vision for a thematic and collaborative future.
OMERS INFRASTRUCTURE AS AN INVESTOR (CONTEXT)
As we take a deeper dive into who OMERS Infrastructure is as an investment manager, I would like to start by sharing a bit about a recent trip that I think demonstrates what we value and how we like to partner:
Recently, I was fortunate to visit India with my two colleagues Delphine and Chris, this was my first time in India in over 10 years. Somehow, we managed to pick the hottest day of the year and arrived into Delhi in 49oC heat.
We spent time with the teams at Azure Power and Indinfravit, two companies on the OMERS Infrastructure platform.
We also met with government officials, investors, and partners. Over four days we had 20 meetings that have shaped how we will approach investing in the country.
We shared and learned so much about the infrastructure need in the country, risk profiles for different sectors, demographic and macro-economic trends and outlook, the role technology might play in infrastructure, the value that can be created from investing across the value chain, and much more.
It also reinforced how each market here is so unique.
What can you learn about our OMERS Infrastructure platform from this? We have grown and evolved, quite dramatically in some ways, in our more than two decades of operation; however, our curiosity and desire to meet people in their context, to spend meaningful time in the places where we look to invest, and really understand first-hand the short, medium and long-term outlook, hasn’t changed. In my view, it never will.
We are the global infrastructure investment arm of one of Canada’s largest defined benefit pension plans. Firefighters, police officers, paramedics and other municipal workers rely on us for their lifetime pensions.
We were founded more than 20 years ago with the view that we could deliver returns that would match pension liabilities, and our asset class could withstand volatile economic cycles while benefitting from geographic diversity.
This was long before many large institutions started investing in infrastructure.
Being an early entrant to the asset class has helped us build a great business, team and portfolio of assets that would be very difficult to replicate if we had to begin from scratch today.
By the numbers, we have grown to be a genuinely global and-diversified portfolio – with 31 investments, in 12 countries.
Infrastructure assets make up 20% of the OMERS Plan, which now has $121 billion in net assets. Our allocation could grow to up to 25% of the total plan by 2025.
We also manage third-party capital, and on behalf of OMERS and its partners, we currently oversee ~C$32 billion in capital around the world.
Something we’re also very proud of is the consistency of our past performance – having delivered a return of ~8% to ~12% in each of the last five years.
While we value and respect our own history, we have also been evolving for the future
That includes refining our strategic definition of infrastructure – to anticipate a rapidly changing world and help us capitalize on long-term, global trends.
We have established five global investment themes: energy transition, mobility, connections, which includes how we think about digital infrastructure, community, which includes how we think about social infrastructure, and natural systems.
These themes drive our strategy, informing everything we do internally and externally.
They allow us to see things differently, encouraging us to embrace complexity.
We believe these trends are of particular significance to our discussion here today. Many of our investment themes will manifest themselves in Asia faster than anywhere else in the world.
So, with those more significant infrastructure trends and investment themes in mind, I would like to set the stage for the opportunities we see ahead.
MACRO-TRENDS THAT ARE SHAPING OPPORTUNITY (DEMONSTRATING ACTION)
Most notably, there is a massive need for infrastructure investment in the coming decades, to the tune of $95T, according to estimates by the G20.
At the same time, there has never been more capital, more competitors, and more reasons for investing in infrastructure as there are today.
While the capital chasing infrastructure opportunities has grown, so has the playing field – we have seen the risk spectrum widen and the definition of infrastructure evolve. We now have investors specializing in super core through to value-add, and we see more infrastructure investments in telecom, healthcare as examples.
Within this landscape, we believe Asia provides exciting opportunities within the infrastructure space.
It is a region that is diverse economically, culturally, and, yes, importantly for those of us here today, in terms of its infrastructure development.
Our team have identified three relevant and attractive macro-trends that we believe will broadly lead to meaningful investment opportunities.
The first is the infrastructure investment gap, which is significant, growing, and presents an immense opportunity for institutional investors.
In emerging Asia, research shows that investment is falling dramatically short of what is needed.
The Asian Development Bank has forecasted that Asia requires a staggering $1.7 trillion annually (climate adjusted), adding up to $26 trillion of investment in infrastructure in the 15 years ending in 2030 (excluding China, the average projected infrastructure gap is ~5% of GDP)
To translate to impacts for private capital, for example’s sake, let’s look at a model by SwissRe, using the assumption of the private sector stepping in and covering 75% of the existing infrastructure gap, as well as 25% of the total identified spend, for economic infrastructure.
Using this model, emerging Asia alone would provide an economic infrastructure investment opportunity of USD 12 trillion over the next twenty years, or USD 607 billion per year.
There will not be a lack of opportunities; our challenge will be to find the best ones.
Our second big trend involves GDP growth and demographics
While countries in Southeast Asia are at different stages of growth and development, almost all of their economies have more than doubled in size since 2000.
As this transpires, populations are growing rapidly, with Asia and the Pacific urbanizing faster than any other global region over the past 40 years.
Megacities are increasing in size and number across Asia. By 2025, Asia will be home to 7 of the world’s ten largest megacities. Significant population growth can also be expected from these megacities and, with it, a significant rise in resource consumption. These regions will fuel half of all consumption growth worldwide by 2030.
This all means that Asia’s economic and social profile should continue to drive significant demand for infrastructure.
Thirdly, there is a compelling argument for governments to increase their spending on infrastructure and to do so in partnership with the private sector
In particular, during the pandemic recovery, we believe governments are incentivized to invest in infrastructure.
Constrained budgets and the discipline of creating strong infrastructure governance around important projects all support working with experienced infrastructure investment partners.
Infrastructure investment also has a multiplier effect, boosting economic growth and job creation that can far outweigh the initial spending.
And we believe this is critical to sustainable and resilient economic growth.
Research by the World Economic Forum suggests strong correlations between quality infrastructure and both GDP growth and human development (which includes life expectancy, income and education) (WEF cited in Deloitte report).
In addition to the broader economic considerations, infrastructure investing can accelerate and support major shifts created or amplified by the pandemic, which in Asia can include:
Disruption and adaptation of trade and flows and supply chains,
Uneven economic recoveries by country,
Investment in the climate transition, and
Digital adoption.
In Asia, during the pandemic recovery, governments have focused on investment in specific sectors that are also of interest to us. In South-East Asia, for example, we noticed that renewable energy, logistics, and ICT are all being prioritized for infrastructure development.
OUR COLLABORATIVE VISION FOR THE FUTURE
Now let’s bring this all together to outline our collaborative vision for the future.
First, let me pair the trends, market demands and opportunities we see taking place in Asia with the sector outlook, strategy, expertise and purpose of OMERS Infrastructure.
I spoke about the three important trends we’ve noticed particularly in Asia – the massive infrastructure investment gap, economic and demographic growth that is driving demand, and the compelling argument for the public and private sectors to work together.
OMERS Infrastructure has a long track record of success on important, large and complex infrastructure projects, like Bruce power, the world’s largest nuclear plant, a public private partnership with the Province of Ontario.
This includes:
Successful infrastructure investments with long-term importance to economic growth and development,
an ability to develop country-wide or regional platforms, and,
investments that deliver impact for local communities and our members.
We believe the future of infrastructure will be decentralized, decarbonized and digitized. Our ability and experience embracing complexity uniquely positions us to succeed and help fill the gap.
These views have guided and shaped our five investment thematics.
Of those five, we are particularly excited about the potential of three of these in Asia – Energy Transition, Mobility and Community. Here is why:
Energy Transition
We see a tremendous opportunity for OMERS Infrastructure to work within Asia to achieve our respective energy transition goals. This includes meeting growing energy requirements and strengthening energy security through investment in renewables platforms, networks and transition, and green fuels over the next 20 years.
OMERS is currently invested in a renewables Platform in India and would like to grow our renewables presence further across Asia.
Energy demand in Southeast Asia has increased on average by around 3% a year over the past two decades, and this trend is likely to continue to 2030.
Japan, South Korea, Laos, Singapore, Sri Lanka, Thailand, Malaysia, Vietnam, India, and Fiji have net zero commitments/targets.
Southeast Asia must attract much higher levels of energy sector investment to accelerate its clean energy transition and meet rising demand for energy services.
Indonesia and Malaysia are cooperating with Japan to develop hydrogen, ammonia and CCUS supply chains. Similar initiatives are underway in Thailand and Singapore.
Mobility
We also see great opportunity in creating better access to transportation infrastructure across the region to help facilitate Asia attain its trade and transit development goals. Currently, the movement of goods and passengers can still be hindered by missing links and poor-quality connections in the transport system.
OMERS is currently invested in toll roads in India, recently expanding our portfolio by five toll roads to 18 toll roads
Transport comprises 32% of the infrastructure investment needed across the region till 2030 ($8.4 trillion), second only to the power and energy sectors in estimated investment needs.
Asia’s share in the total worldwide transport sector–related carbon dioxide (CO2) emissions is increasing and is expected to reach 31% by 2030.
Creativity and new initiatives will be required as capital is being invested.
Community
The pandemic highlighted the importance of social infrastructure development.
OMERS is currently invested in laboratory businesses in Canada and Germany, and this is a space we understand well and can bring value to.
The need for high-quality social infrastructure, including that providing health services, elderly care, schooling, etc., has been demonstrated.
The growing populations in Asian megacities are also aging. By 2050, the ratio of the elderly to working-aged people is predicted to reach 2.5 times current levels. This will raise the demand for health care.
Beyond healthcare, we view social infrastructure as a growing and rapidly evolving sector for infrastructure investors. The definition of infrastructure will continue to grow – as the social infrastructure sector evolves, and communities adapt and become smarter to new realities.
CONCLUSION
We will continue to focus on and evolve our investment themes to be future-focused, flexible, and adaptable. We may strategically go to places we haven’t been before, invest in new types of assets, and find new and different partners.
We expect to increase our overall exposure to Asia-Pacific in light of the opportunities I mentioned.
We also want to work with more third-party capital partners. Managing capital on behalf of other investors allows a great alignment of interests and allows us to take bigger positions in larger investments with better governance.
To succeed in the industry, one must believe in a better tomorrow and our ability to continually work together to solve our most pressing challenges.
Infrastructure can be a stabilizing force in times of turbulence.
All of this is why we are excited to lead change and build value.
It is what we have done for 20 years and what we will continue to do.
With that, I am open to questions. Thank you!
The views expressed in this article are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction. Any information or opinions are provided for informational purposes only, and are subject to change without notice. Neither OMERS nor OMERS Infrastructure nor any of their affiliates makes any representation or warranty, express or implied, as to the accuracy, reliability or completeness of any information contained in this article, and any liability therefore is expressly disclaimed. OMERS Infrastructure is not providing any financial, economic, legal, accounting or tax advice or recommendations in this article.
