CPP Urges PAI Investors To Reject Fund Proposal

LONDON (Reuters) – The Canadian Pension Plan Investment Board (CPP) has asked fellow investors in PAI Partners to reject the buyout house’s plan to slash its fund in half as inadequate, sources familiar with the matter said.

PAI last month proposed shrinking its fifth buyout fund by half to 2.7 billion euros ($4.0 billion) following a boardroom coup which saw chairman Dominique Megret and his right-hand man Bertrand Meunier leave the company. [ID: nLI497838]

CPP wrote to other investors late last month to say it was not prepared to back PAI’s proposal, and would be in touch shortly with a counter-proposal, a source who had received the email from CPP said.

“We are considering that proposal and alternatives to it that might better serve the interests of investors,” said the source, reading from the email.

CPP was not available for comment. PAI declined to comment on what it said was a confidential process.

As sales of private equity-owned companies have ground to a halt, many investors have been starved of cash to back new buyout deals, forcing them to try and renegotiate terms with private equity houses. Any cut in the size of PAI’s fund, which owns stakes in IT services company Atos Origina and building materials firm Xella, would echo similar moves from TPG and Permira, who faced pressure from investors keen to reduce exposure to buyout funds.

One option could be for CPP to demand a steeper cut in the size of the fund, and a second plan could see CPP assemble a blocking minority to push through a winding-up of the fund, the sources said.

While investors may be keen to reduce commitments to private equity, any plan to wind-up the fund or further reduce the size of the fund may hamper the firm’s ability to manage existing investments, another source close to the situation said.

“There is a real concern that a fund reduction of much beyond 50 percent may force the dismantling of the fabric of PAI which would affect the performance of other funds,” the source said.

CPP invested 100 million euros in PAI’s third fund in 2001, 200 million in its fourth in 2005 and committed 350 million to its fifth in 2007, according to data on its website.

CPP has committed some $34 billion to private equity since 2001, of which more that half has been invested. In recent years, it has been boosting its principal investment portfolio, which sees it invest directly in companies, such Alliance Boots, alongside private equity firms.

Investors vote on the proposal tabled by PAI on November 20.

By Simon Meads
(Editing by Dan Lalor) ($1 = 0.6795 euro)