CPPIB eyes up to $5 bln for private equity funds in 2014

The $227 billion Canada Pension Plan Investment Board (CPPIB) expects to invest up to $5 billion in private equity funds this year as the pension system faces a challenging environment for returns and high purchase price multiples in the deal market.

André Bourbonnais, senior managing director and global head of private investments, said CPPIB has seen better returns in its direct investments program because of lower fees, but the pension system remains focused on private equity funds as well.

The pension system is trending between $4.5 billion to $5 billion in private equity investments this year with commitments to 12 to 15 funds, including a mix of new and existing managers in both developed and emerging markets, compared to about $4.4 billion invested into 12 funds in 2013.

“Where we see the most value right now is sort of in the mid-market, but in fairly specialized funds,” Bourbonnais said.

CPPIB has not participated in a major buyout in about 18 months since it teamed up with Ares Management to buy luxury retailer Neiman Marcus. Bourbonnais said the slowdown is at least partly because of lofty purchase price multiples.

”In a market that is running very fast in front of us, we’ve been prudent,” Bourbonnais told about 100 alternative investment pros at September’s PartnerConnect LP-GP Summit in New York, sponsored by Buyouts and Thomson Reuters. “In terms of multiples, we’re at an all-time high and that’s very, very worrisome.”

Despite the high cost of deals, most of the general partners in CPPIB’s portfolio have remained disciplined, he said. For a pension system of its size, CPPIB has stuck with “very strong relationships,” with a private equity investment portfolio of only 60 fund managers.

Bourbonnais flagged CPPIB’s investment in reinsurance company Wilton Re as an example of deals that allow the pension system to benefit from experts in a niche market. He said it has been tough for CPPIB’s private equity portfolio to keep pace with the rally in equities, despite its double-digit returns. “The public market is doing so well, it’s hard for us to beat it,” he said.

In July, CPPIB was named the world’s biggest private equity investor by Private Equity International‘s PEI LP50. The report noted that around 45 percent of CPPIB’s total market activity was accounted for by partner funds. In dollar terms, that is more than almost any other limited partner organization.

Bourbonnais was interviewed by peHUB Canada in November 2013.

(This story has been edited by Kirk Falconer, editor of peHUB Canada)

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