 "Jim Leech")
Jim Leech, former CEO of Ontario Teachers' Pension Plan, one of the world's biggest pension funds, shares his insights on what India needs to do to make the country an attractive destination for pension funds. He spoke to Sudipto Dey on the sidelines of a panel discussion organised by McKinsey Leadership Institute on Leadership and World Economy: Edited excerpts:
On investment philosophy for emerging markets
The basic investment philosophy is to understand what you are trying to accomplish while making an investment. A pension fund investor will have very different objective than, say, a hedge fund. For a pension plan, the most important thing to do is to offset the liability of paying retirees 20 or 40 years from now. One has to think about what those cash-out flows are and make investments that match them as closely as possible. Pension plans are interested in Indian infrastructure. I refer to investment in infrastructure as inflation-sensitive bond on steroids. You will find most pension plans have a large fixed income component, growing real estate and infrastructure component and probably a shrinking share equity component.
On what India needs to do to attract more pension fund investments
There are two issues that come to mind. One is taxation. There is double taxation on dividends. A pension fund wants to own a toll road or a hydel project for ever. It takes dividends out to pay pensions. The double taxation makes it uneconomic.
The other is the land acquisition issue, which really hurts infrastructure investments.
From the outside, it is not an easy environment to do business (in India). For an economy this large, which wants to attract capital, they should make it easier (to do business). Prime Minister Narendra Modi has gone international and talked to Canadian pension funds. He is doing and saying the right things, but there has not been necessary follow-up so far.
Taxes, over-lap in jurisdiction between state and the federal governments, and the long time taken to work through the bureaucracy have created a drag. There is a real opportunity for India in the next five years; just don't squander it.
On attracting pension funds from Canada
They have to continue to listen to the marketplace. India has reached out to Canadian pension funds, but they need to keep asking what does it take to make you come in a big way. Already, some of them have opened offices in India.
