Speaking at the SuperReturn conference in Berlin last month, Jim Pittman, vice president-private equity of PSP Investments, said that, in light of the disappointing performance of mega-buyout funds, the board plans to halve the number of relationships it has with general partners over the next three years. The fund manager will instead focus on leading direct investments or co-investments with a select number of GPs.
All told, the board has committed to 25 GPs, 18 of which manage buyout funds. All except two of those 18 have provided lackluster returns to date, according to Pittman. PSP Investments only invested in two new funds during 2008 and 2009, and both were spin-out or first-time funds. In 2009, PSP Investments had $4.2 billion invested in private equity funds and $3 billion allocated but not yet committed; it also had a total of $1.3 billion invested in co-investments and co-lead deals.
PSP Investments is following the leads of its Canadian pension fund peers
PSP Investments started its private equity allocation program in 2005, and its primary goal has been to back global buyout funds and to pursue co-investments alongside them.
The board has a 12 percent actual allocation to private equity, at the high end of its 10 percent to 12 percent target allocation. By geography, the board has committed about 46 percent of its money in the United States, 28 percent in Europe, 14 percent in Canada and the remainder in Asia.
Headquartered in Ottawa,Canada, PSP Investments is a crown corporation established in 2000 by Parliament as per the Public Sector Pension Investment Board Act (September 1999). The fund manager, which has $40 billion under management, is growing by $4 billion per annum. Its mandate is to manage employer and employee contributions made after April 1, 2000 to the federal Public Service, Canadian Forces and Royal Canadian Mounted Police pension funds. PSP Investments has also been given the mandate to manage the employer and employee contributions made after March 1, 2007 to the Reserve Force Pension Fund.
The board’s assets are invested in fixed income instruments and Canadian and foreign equities, real estate, private equity, infrastructure and other permissible investments through in-house and external managers.