How CPPIB does it

Five observations on Canada’s largest private equity investor and its approach to the secondaries market.

We recently sat down with Michael Woolhouse, the man who leads secondaries activity for the C$298 billion ($223 billion; €208 billion) Canada Pension Plan Investment Board.

Since it began investing in private markets in 2001, CPPIB has become a private equity behemoth. Its C$63 billion in private equity assets is larger than any of its Canadian peers. And like those peers its private markets exposure goes beyond the traditional GP-LP relationship. 

Woolhouse, who also oversees the pension’s co-investments, took us under the hood  of the private equity programme. Here are some of the secondaries highlights:

CPPIB is going against the grain, shifting its gaze away from the growing market for GP-led transactions and towards fund stakes. Under the leadership of Woolhouse’s predecessor, Yann Robard, the group focused heavily on GP-led deals, helping firms such as JW Childs Associates and Kainos Capital Partners restructure or recapitalise ageing funds. In the past 18 months, however, Woolhouse has refocused his group away from those deals on the basis that they can be more challenging in part because the quality of opportunities has become questionable, dealflow is intermittent and they are expensive.

It put C$2.5 billion to work in secondaries transactions last year, half of which was invested into a portfolio worth just under $1 billion sold by Australian sovereign wealth fund Future Fund. Within that deal was around $500 million in exposure to Oaktree Capital Management funds. The remainder was invested into about a dozen transactions with single fund interests.

It’s bringing its size and speed to bear to gain an edge in fund stake acquisitions. “We have restructured how the team is organised so we gather information about the funds we’re pricing in a structured way,” said Woolhouse. “We can know more about what we’re buying when portfolios come to market. We can react, and that’s a necessary thing if we’re competing against the best of the best.”

Its failure to buy SVG Capital was bittersweet. The pension teamed up with Goldman Sachs to play white knight in the 2016 battle to delist private equity investor SVG Capital. “We ultimately failed and it’s always disappointing to fail, but HarbourVest [which won the deal] paid a price we weren’t willing to pay. It’s that simple,” said Woolhouse. “We chose to be price-disciplined at the end.” CPPIB and Goldman Sachs pocketed more than £4 million ($5 million; €4.7 million) in broken deal expenses. 

It is muscling in on the preferred equity space. Like London’s 17Capital and Toronto’s Whitehorse Liquidity Partners (set up by the aforementioned Robard), CPPIB has begun providing liquidity to private funds in the form of preferred equity. In exchange, it can, for example, take a claim over all distributions until it gets its costs back, earn a preferred return and, typically, negotiate an amount on the remaining upside. Although the return is typically lower, the risk is also smaller as it is protected with subordinated equity. “That’s an area we are marketing really hard right now,” said Woolhouse.

Read our full interview with Michael Woolhouse here.

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