CPPIB breaks into single-asset market with $1bn annual deployment target

The move is significant for the Canadian pension giant, which until now had been unable to back such deals via its secondaries unit.

CPP Investments, the largest non-traditional player in the secondaries market, has had a change of heart on its secondaries investment strategy and will participate in the fast growing single-asset market.

The C$550.4 billion ($432.8 billion; €393.5 billion) fund plans to deploy around $1 billion into such deals per year and has already approved a single-asset GP-led transaction this year, executed by its secondaries investment team, managing director and head of secondaries Dushy Sivanithy told Secondaries Investor.

“Excluding a growing part of the market that accounts for a substantial part of GP-leds doesn’t really make sense,” Sivanithy said, adding that his team has the ability to be “very selective” and that alignment with the GP in such deals will be critical.

CPPIB will invest between $50 million and $100 million in concentrated deals and will back processes with GPs even if it does not have an existing relationship with the sponsor.

The Canadian pension giant ideally wants its secondaries portfolio to comprise GP-led deals and LP-led transactions on a 50/50 split, with up to 20 percent devoted to structured deals such as preferred equity.

The single-asset transaction CPPIB has already backed involves a European GP and is worth sub-$100 million, Sivanithy said.

The move is significant: CPPIB’s secondaries team had until late last year been unable to back single-asset GP-leds because such exposure was accessed via its direct co-investment team, where concentrated investments in private equity-backed companies can be accessed typically on a no fee/no carry basis.

The pension will continue to invest directly in companies. Its direct private equity portfolio comprised 88 direct investments worth C$53.3 billion at the end of March last year, up from C$38 billion across 85 investments the year prior, according to its latest annual report.

The risk/reward profile of co-investments and single-asset secondaries is somewhat different and opportunities in either segment come with a different range of returns, according to Sivanithy. The pension plans to underwrite such deals to an internal rate of return in the higher teens and a roughly 1.8x multiple, he added.

All members of CPPIB’s secondaries team will work on single-asset deals in addition to other transactions.

The pension has been staffing up in recent months; in December it hired Evelyn Zhang from Partners Group to lead its European secondaries business, as Secondaries Investor reported on Tuesday. Zhang’s appointment brings the secondaries headcount to 20 across London, New York and Toronto.

Single-asset deals, which accounted for $32.8 billion of deal volume last year according to data from Lazard, have come under the spotlight in recent months, with the Institutional Limited Partners Association set to produce best practice guidance for LPs on how to respond to such transactions.

Firms including KKR, Clayton, Dubilier & Rice and Insight Partners have either closed or are exploring single-asset processes.