Canadian Pension Plan To Spend $10B In Secondary Market

All told, CPPIB, with $168 billion under management, has funneled $5 billion in the past five years into the secondary private equity market, and the pension plan estimates it single-handedly accounts for about 5 percent of the global secondary private equity market, CPPIB spokeswoman Linda Sims said.

In its latest secondary deal, Canada’s largest pension fund said it completed a $468 million deal to create a special purpose vehicle to buy and hold food assets contained in the HM Capital Sector Performance Fund. The assets include MSG Nutritional Ingredients, a food supplements specialist, Earthbound Farm, a maker of organic salad products and Advanced Refreshments, a producer of bottled water.

Toronto-based CPPIB also channeled an additional $138 million to participate in a fund managed by a new firm called Kainos Capital Partners, managed by Andrew Rosen, who led the food and consumer products team of HM Capital. Separately, Kainos Capital Partners is planning to raise about $400 million overall for Kainos Capital Fund, according to a filing with the Securities and Exchange Commission.

Rosen will manage the special purpose vehicle of food companies for CPPIB, as well as the Dallas-based Kainos Capital Fund. But for now the two entities remain separate. A call to Rosen by Buyouts to discuss his fundraising plans was not returned.

“This was a unique opportunity for us to partner with one of the most successful food investment franchises and purchases a portfolio of well-managed quality food companies, each with market-leading positions,” said Andre Bourbonnais, senior vice president, private investments, for CPPIB, in a prepared statement.

Joncarlo Mark of Davis, Calif.-based Upwelling Capital Group, a specialist in helping limited partners maximize the value of private equity portfolios, including non-core assets, said he expects to see more such transactions.

“When I think of zombie funds I think of something that has no value, but these aren’t zombies, they’re just assets trapped in the wrong structure,” he said. “These deals reset the incentive and attempt to realign the interests of the general partner with the investors. My understanding is the existing investors are able to sell their interests. The GP has fresh capital to live another day to demonstrate good investment performance.”

CPPIB’s combined $606 million commitment to the Kainos Capital Partners transactions comes just a few months after the pension fund committed $654 million as part of a $1 billion pool created to purchase limited partnership interests in 2000 Behrman Capital III LP. (See Sept. 17 issue of Buyouts.)

Launched in 2007, the HM Capital Sector Performance Fund generated an investment multiple of 0.81 by the end of 2011, according data from the Oklahoma Police Pension & Retirement System. A call seeking comment on CPPIB’s HM Capital transaction to St. Louis-based Asset Consulting Group, an adviser for the Oklahoma Police Pension fund, was not returned.

The Los Angeles City Employees Retirement System considered investing $5 million in the HM Capital Sector Performance Fund back in 2007, according to this document. The fund was set up to invest in a “diversified portfolio of 10 to 15 portfolio companies, targeting specific industry sectors where the general partner has experience, relationships, and access to specific deal channels,” the document said.

HM Capital traces its roots back more than 20 years to Dallas-based Hicks, Muse, Tate & Furst, which ran into trouble with investments in the telecommunication and media sectors in the early 2000s. The firm changed its name to HM Capital in 2006 after co-founders Tom Hicks and Charles Tate left.

Among the woes facing the firm’s founders, Hicks was forced to sell his ownership stakes in the Texas Rangers and Liverpool Football Club in legal wrangling in recent years.