Canada Pension Ups PE Stake by $391M

Continuing its aggressive push into private equity, the Canada Pension Plan Investment Board (CPPIB) has invested nearly $400 million in five PE funds. Most will be put to work in buyouts, with the rest going to late-stage venture capital and secondary funds.

Toronto-based CPPIB is an independent firm that invests on behalf of the Canada Pension Plan (CPP). It began investing in private equity just two years ago, but it has already made commitments totaling nearly $4 billion in 37 limited partnerships managed by 32 private equity firms. It has been on such a brisk pace that it is very near CPP’s goal of investing 10% of its $43.8 billion in assets in private equity.

“We think it’s been a very good environment to invest in private equity,” says Mark Weisdorf, vice president of private market investments for CPPIB. “The Canadian PE and VC market is healthy. Economies and capital markets are cyclical. The Canadian declines are just a normal part of the cycle.”

Of the $391 million (or $450 million in Canadian dollars), CPPIB is putting most into new investments:

    * Credit Suisse First Boston will get $150 million for its Private Equity Customized Fund Investment Group. Of that, $100 million has been committed to a fund-of-funds to be committed over three years for investments in U.S. mid-market buyout funds. The remaining $50 million has been committed to a co-investment program to be drawn down over seven years. CSFB is part of financial services company Credit Suisse Group, which is based in Zurich, Switzerland.* New York-based Lehman Brothers Private Equity pulled in $75 million for its Lehman Brothers Venture Partners 2003. The amount will be drawn down over five years and will be invested in mid- to later-stage venture capital investment opportunities in North America.* Los Angeles-based Ares Management is set to receive up to $75 million for its Areas Corporate Opportunities Fund. The money will be drawn down over five years andused as “junior capital” for restructuring or growing highly leveraged middle-market companies in North America.

Additionally, CPPIB upped its commitments to two firms it has worked with in the past – Kensington Capital Partners and Lexington Capital Partners.

Of the $100 million going into Kensington, $50 million has been committed for the Canadian buyout fund-of-funds and the rest to a related fund that will co-invest directly in private companies in Canada. That brings CPPIB’s total commitment to Kensington to $200 million.

Finally, CPPIB put $25 million into Lexington Capital Partners V, a $2 billion secondary fund.

CPPIB’s investments are a spot of good news for Canadian private equity.

“The second quarter of 2003 reflects the slowest pace of venture activity in Canada since 1996,” states a report by Canadian VC research firm Macdonald & Associates. Canadian venture firms invested just $151 million in the second quarter, a drop of 33% from a first quarter total of $224 million. The Canadian Venture Capital Association cited the SARS epidemic as a factor in the shortfall and says that a recent increase in the rate of acquisitions is a positive sign.

“With SARS behind us, we are already experiencing a greater number of transactions in Q3,” says Brad Ashley, CVCA president and managing partner of PRIVEQ Capital Funds. “The recovery will be a gradual one.”

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