Not content simply to just participate in deals outside of North America, some of the largest Canadian limited partners have in the past year put down roots in Europe and Asia.
Among those stepping up their efforts in emerging markets is the Canada Pension Plan Investment Board (CPPIB), which launched a Hong Kong bureau in February and opened a London office in late May.
Meanwhile, the Ontario Teachers’ Pension Plan hung out its London shingle about a year ago. The $258 billion Caisse de dépôt et placement du Quebec ventured forth from North America a while ago and has already opened nine offices in Europe, Asia and Latin America, including outposts in Paris, Hong Kong, Mexico City and Buenos Aires.
And the Ontario Municipal Employees Retirement System said it intends to set up shop in London this fall.
Managers of the limited partners say that the most important reason why they are going abroad is that overseeing existing foreign assets and expanding non-domestic investments can more easily be done with boots on the ground. In London, where CPPIB, the investment entity of the $116 billion Canada Pension Plan, is developing a larger presence, the LP plans to hire seven people to staff the office by the end of this month. And the LP will likely expand further.
“The London office gives us the ability to do three things in Europe: identify new investment opportunities and partners; be closer to our existing partners to better service those relationships; and be closer to the substantial existing assets that we have in the U.K. and Europe and their management,” says Mark Wiseman, who leads the CPPIB’s private equity and direct investment activities.
Almost all the CPPIB’s private equity portfolio is located outside of Canada, with a significant amount of capital invested in the United Kingdom and continental Europe. That includes $8.9 billion of funded commitments to private equity, infrastructure and real estate partnerships as well as substantial public market holdings in Europe that amount to more than twice that sum.
Because CPPIB had few commitments to emerging markets before fiscal year 2008 and had almost no exposure in Asia, it has recently expanded the scope of its activity in greater China, Korea and Japan. The LP opened a Hong Kong office earlier this year and committed to several new funds, including $350 million to KKR Asian Fund; $350 million to TPG Asia Fund V; and $50 million to CITIC Capital Fund.
“The Hong Kong office puts us on the map,” Wiseman says. “India and China will be a much larger percentage of the global markets than they are today. We have to be able to take advantage of the diversification that global markets offer.”
In all, CPPIB pledged $950 million to Asia-focused funds during the fiscal year ended March 30, thus growing its emerging markets private equity commitments to more than $1 billion, compared to just $115 million in fiscal 2007.
In the past year, OMERS has significantly increased its investments in Europe and Asia, says Paul Renaud, president and CEO of OMERS Capital Partners, the private equity investing arm of the $48 billion pension plan.
As of February 2007, OMERS had $144 million committed to Asia-based private equity partnerships. By June 2008, that had risen to $250 million in commitments to Asian funds.
In addition to its commitments, CPPIB has established itself in Asia by co-sponsoring, along with Ontario Teachers’, a new private equity fund. That fund targets businesses in China seeking earnings growth and expansion and focuses on deals of about $50 million each. Each LP committed $200 million to the new venture, which is called FountainVest.
The same two LPs teamed up previously in Istanbul, the largest city in Turkey, which straddles the continents of Europe and Asia. In 2007, they established Actera Partners, a private equity fund dedicated to Turkey, pledging $115 million each and raising the rest of the $500 million fund from plan sponsors, multilateral institutions and sovereign wealth funds worldwide.
Actera Partners has so far closed two investments, including control stakes in an outdoor advertising company and a spirits producer and distributor.
Despite its obvious interest in China and Turkey, London is Ontario Teachers’ only office outside North America at the moment. The LP also opened a New York office earlier this year and hired Rakesh Gangwal, a former top executive at Worldspan US Airways, to be the first executive to join Teachers’ Private Capital, the private equity arm of the Ontario Teachers’ Pension Plan, as a global senior adviser.
Ontario Teachers’ intends to build a network of seasoned business leaders to function as operating partners for the LP’s direct investments.
Ontario Teachers’ opened the London office not just to be close to its European investments but also to be near Asia and Africa, says Carol Dunsmore a spokesperson for the LP. For now, the London office is the only geographic expansion on Ontario Teachers’ radar, she says.
In the coming year, the natural progression of CPPIB’s investment program will lead it further afield into the emerging markets of India and Latin America. The pension fund already has experience in Chile, having participated in the buyout of HQI Transelec Chile S.A., Chile’s largest electricity transmission company.
“We will spend time in Brazil, which is the largest economy in the region. We do have infrastructure investments in Chile, which is a small economy, but it is relatively attractive,” Wiseman said.