Caledon Capital Is Ready for Its Closeup

Close UpIt’s quite possible that some people haven’t yet heard of Caledon Capital Management, a Toronto-based firm specializing in private-market investment solutions to institutional investors. That’s because Caledon’s growth since its founding in 2006 by David Rogers, former head of private equity at the Ontario Municipal Employees’ Retirement System (OMERS), has been quiet, even discreet.

But grown it has. In 2008, the year Caledon signed with its first long-term client, the firm employed two people – partners Rogers and Jean Potter.

Today, Caledon employs 17 professionals, including 11 investment pros, who work on behalf of seven institutional clients, most of them Canadian and U.S. public and corporate pension plans sized between $3 billion and $20 billion.

Caledon provides clients with customized accounts for investing in infrastructure and private equity. Each account program is individual, tailored to specific client needs and risk preferences, and flexible enough to be adapted over time.

“We like to think of Caledon as an extension of our clients’ internal management teams,” said Rogers. “As required, we can help create exposure to external fund partners, design and implement a co-investment platform, or build strategic relationships with other institutions.”

One of the firm’s clients is the US$10 billion New Mexico Educational Retirement Board (NMERB). NMERB hired Caledon in 2011 to develop its infrastructure co-investment program and advise on real asset opportunities as they arise.

“We encourage clients to engage directly with Caledon professionals,” said Martin Day, a former managing director at OMERS who joined Caledon as a partner last year. “They’re involved in all phases of program development, choosing those activities and those strategies which suit them best. It’s a highly interactive process.”

David RogersRogers and Day believe the business model has tapped into a rich vein of demand, especially among small and mid-size institutions. In fact, it was with small organizations in mind that the idea of Caledon was born. While at OMERS, Rogers and Day routinely heard from managers of small pension plans hoping to partner with the larger entity. “They would say: We want to have what you have,” recalled Rogers.

That gave Rogers the idea for an independent firm capable of providing advice and support to institutions of all sizes. “Part of Caledon’s mission is to bring the ‘large-institution experience’ to small and mid-size pension plans,” he said.

This is achieved in a variety of ways. Along with primary fund investments, Caledon clients have opportunities for doing co-investments, direct investments and secondary purchases of the kind pioneered by large Canadian pension plans. They can also do “club deals” with like-minded institutions, increasing access to deal flow while lowering transaction costs.

Day says that some clients are new to alternatives and rely on Caledon for direction in ramping up investment programs. He pointed to a recent Canadian social infrastructure partnership structured for clients wanting lower risk and yielding assets at the outset of their programs. The result was a diversified portfolio of PPP assets, to which existing and new clients are committing further capital.

Whether clients are market newbies or veterans, Rogers and Day believe Caledon offers institutional investors enhanced and more diversified performance than can be obtained through conventional advisory strategies. With this comes better utilization of institutional capital and reduced fee drag, they said.

Day thinks interest in specialty firms like Caledon owes partly to dissatisfaction with the “value proposition” of alternative asset managers. “Institutional investors are becoming disillusioned by the high fees and mixed returns of the funds-of-funds industry”, he said. “As they investigate new sources of long-term alternative investments, they’re also looking for strategies that more closely align with their fiduciary priorities.”

Caledon’s team reflects years of experience at some of the market’s best-known institutional investors.

Partner Asif Hussain, for example, who joined the firm in 2010, previously worked in the infrastructure group of Abu Dhabi Investment Authority and at Borealis Infrastructure. Partners Jean Potter and Justin Kusinskis, who joined in 2010, both worked at TD Capital Private Equity Investors, the forerunner of Northleaf Capital Partners.

More recently, Caledon hired Jeff DeBlock as vice president. Prior to joining the firm in 2013, DeBlock invested directly in global infrastructure assets at Canada Pension Plan Investment Board.

Photo of David Rogers courtesy of Caledon Capital Management.

Photo of executive courtesy of ShutterStock