CPPIB: Plan To Boost Exposure to Emerging Markets

TORONTO (Reuters) – Canada Pension Plan Investment Board, one of the world’s largest private equity investors, may boost its exposure to emerging markets this year, a leading CPPIB executive said.

In the past year CPPIB participated in C$7 billion ($6.66 billion) of new transactions – with 37 new investments in private assets – as it took advantage of an investment horizon and scale that is several times larger than many private equity funds.

As CPPIB looks at fiscal 2011, which began last month, it will likely invest more in emerging market funds, especially in fast-growing Asian economies.

“We will continue to be probably among the largest investors in the world in third party funds,” said Mark Wiseman, CPPIB’s executive vice-president for investments, in an interview ahead of the annual Canadian Venture Capital and Private Equity Association (CVCA) conference in Ottawa.

“If I were going to take a guess to how that breaks down geographically, I would suspect you’ll see more activity in emerging markets for us,” Wiseman said, “primarily more in Asia, meaning China and Korea, and in India.”

CPPIB, which has some C$127 billion in assets under management, invests in about 155 funds around the world, with a little more than 50 of them considered to be core.

For Wiseman, that is a reflection of CPPIB’s view that diversification is the enemy when it comes to investment in third party funds, because it dilutes the yield of top peformers.

Put differently, buying into more funds increases the chances of picking a poor performer.

CPPIB also invests directly in certain companies alongside the private equity firms it is involved with.

The strategy allowed it to be involved in three of the top five global private equity deals of 2009, including the largest leveraged buyout of the year — the $4 billion acquisition by CPPIB and U.S. private equity firm TPG [TPG.UL] of IMS Health Inc RX.N, a prescription drug sales data provider. 

Wiseman does not expect to repeat that record in fiscal 2011, which began April 1, in part because the fund will see more competition from other private equity funds that have begun to strengthen again as the global economic crisis wanes.

“My best guess is that in 2010, the pie will actually grow, but the portion of the pie we will actually capture will shrink.”

($1=$1.05 Canadian)

(Reporting by Pav Jordan; Editing by Frank McGurty)