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TORONTO (Reuters) - As Jim Leech contemplates his fund's strategy for expanding around the world, he needed only to remember how his massive Ontario Teachers' Pension Plan parachuted into Brazil's then-nascent investment market less than a decade ago.
Teachers' recipe was simple: identify a promising market, lay the groundwork and, years later, reap the rewards with the inside track on money-making projects.
The C$110 billion ($107 billion) fund's ambition is to replicate its Brazilian success elsewhere, though for now Leech won't disclose exactly where.
What's certain is the basic game plan.
In Brazil, Teachers sent its experts into the country for two weeks in 2005 to get the lay of the land. The team came away convinced that a rising middle class would keep powering South America's largest economy ahead.
"I can vividly remember the trip when the fixed income guys, after meetings with all sorts of finance ministers, decided that Brazil was going to get investment grade faster than the world thought it was," Leech told Reuters in a wide-ranging interview from his offices in Toronto, Canada's financial hub.
After the decision was made to focus on Brazil, Teachers began the hard work of building up an extensive network of relationships in the country.
"That's where we met Eike Batista," Leech said, referring to a 2006 cocktail party and dinner attended by Batista, a Brazilian billionaire with a global portfolio of mining and oil properties.
A year later Teachers led a C$1.3 billion private placement in Batista's OGX Petróleo e Gás (OGXP3.SA), an oil and gas exploration and production company that in June 2008 launched the largest IPO in Brazilian history.
"We're a first mover. It's the relationships and the networks that are really the value of what we have created," said Leech, a graduate of Canada's Royal Military College with a penchant for clear mission statements and steely discipline.
Now that Teachers holds billions of dollars in Brazilian investments, it aims to harvest seeds planted in other emerging economies as long ago as 2005.
A strong believer in pressing a "first-in" advantage, Leech is not about to name the geographies that Teachers is targeting. They will come from a tight list of less than a half a dozen where the fund has quietly built up networks like the ones that made it a market leader in Canada after it was freed from government control in 1990.
The need for secrecy is paramount in an increasingly global industry where investors vie for a first-in or homefield advantage for as long as possible before markets become too competitive. In India or China, investors battle for a toehold, and prices have become steep. Leech suggests he's looking elsewhere.
"Our strategy is very much concentrated on those areas where we think there are growth opportunities, but more importantly where we can grow our own network to get the same type of competitive advantage that we think we have here on our home territory," said Leech, who earned an MBA at Queen's University in Kingston, Ontario, after leaving the military.
"I guess what I'm trying to say is you plant the seed and you nurture it and it pays off many years later," he said. "You know it's serendipitous, but if you aren't there you are not going to be a part of it."
To be sure, Teachers, which invests the retirement funds of 178,000 teachers in Canada's most populous province, is under the most pressure of any of the country's giant pension funds, facing unfunded liabilities in the billions of dollars as the benefits it pays far outstrip annual contributions.
Even so, it has become the envy of global pension funds that want to emulate a professional management style and expertise that have given it the highest average rates of return in the industry for the past 10 years - around 7, compared with global median of about 2.3 percent.
In October, when New York Mayor Michael Bloomberg announced an overhaul of the city's $120 billion pension funds, the city all but named Teachers and its Canadian peers as its models.
It even invited Leech and his team to visit the Big Apple to explain the Teachers approach, which focuses on running the fund like a business and sparing no expense to attract talent to manage investments. The same model, adopted by other Canadian pension funds, contrasts with U.S. funds that farm out management of their capital to external advisers.
"It remains to be seen whether (New York City) can actually do it, but that is really the first explicit recognition by some constituency in the U.S. that they've got to stop doing what they are doing and raise the bar of managing pension assets," said Keith Ambachtsheer, a pension expert.
"They didn't actually use the words 'the Canadian formula,' but it is the Canadian formula."
Reporting By Pav Jordan; Editing by Frank McGurty