CDPQ, OMERS prosper in last year’s red-hot PE deal market

Two big Canadian pension systems that have historically targeted private equity returns in the high teens did a lot better in the record deal market of 2021.

Caisse de dépôt et placement du Québec earned a one-year net return of 39.2 percent from its PE investments, according to a preliminary annual report. This topped a 32.1 percent benchmark return as well as a 2020 return of 20.7 percent.

CDPQ, which oversees nearly C$420 billion ($330 billion) of assets, attributed the performance to “good positioning” in growth sectors that drove dealmaking in 2021’s post-covid environment. They include consumer, financial services, healthcare and technology.

Another factor is a pivot to direct deals. CDPQ has in recent years reweighted its PE portfolio to direct investing from fund investing to achieve stronger returns. At present, more than three-quarters of assets are co-sponsorships and co-investments.

In an interview last June with Buyouts, Martin Laguerre, CDPQ’s head of private equity, said he wants to expand the strategy’s “addressable market.” This will be done by keeping the existing directs-to-funds ratio but branching out into areas like Asia, mid-cap deals and credit, and enhancing value-adding capacity.

CDPQ added to its direct holdings last year, investing C$10 billion. Its deals included leading a financing of cloud data protection provider Druva and buying a majority stake in technology services supplier Wizeline from Apax Partners. CDPQ also backed M&A by insurer Constellation and acquired a minority interest in supply chain compliance provider Qima.

In addition, CDPQ generated C$13 billion in realizations. Taken together, activity lifted PE portfolio assets to more than C$80 billion as of the end of December, up 29 percent year over year. Private equity now reflects 19.7 percent of the entire asset mix.

OMERS, an institutional pioneer of direct investing, also saw outsized performance in 2021. It earned a one-year net return of 25.8 percent from its PE investments, according to a final annual report, well above an 8 percent benchmark return.

This captures results across OMERS Private Equity, including its growth equity and venture capital arms. The direct buyout platform has typically accounted for the strongest returns.

For OMERS, a C$121 billion pension system, last year’s performance marks a sharp turnaround from 2020. Heavily impacted by the pandemic, the PE portfolio then generated a negative net return of 8.4 percent, its worst showing since the financial crisis.

OMERS’ long-time strategy targets opportunities in business services, healthcare, industrials and technology. As with CDPQ, this focus on high-growth sectors facilitated performance in 2021. Another factor was lucrative exits, such as the sale of sustainability consultancy ERM to KKR, reportedly for a $2.85 billion value.

After a challenging 2020, OMERS’ PE group returned to growth mode last year, working a deal pipeline “as full as it ever has been,” global head Michael Graham told Buyouts in November.

The buyout platform made three new investments, among them the acquisition of gastroenterology physician practice manager Gastro Health from Audax Private Equity. OMERS also purchased a minority stake in International Schools Partnership from Partners Group and bought HVAC, plumbing and electrical services provider TurnPoint Services from Trivest Partners.

Overall PE portfolio assets increased to almost C$20 billion as of the end of December, up 34 percent year over year. Private equity now makes up 16 percent of total OMERS assets.

CDPQ was the world’s second largest PE investor in 2021, Private Equity International reported, while OMERS ranked 29^th of the top 100 investors.