CDPQ private equity outperforms in 2020, OMERS takes a covid hit

For two big Canadian pension funds with long histories in private equity, last year’s virus-roiled market delivered contrasting results.

Caisse de dépôt et placement du Québec earned a net return of 20.7 percent on its PE investments in 2020, according to a year-end financial report. The portfolio easily outperformed a benchmark of 9.9 percent, as well as a 2019 return of 10.5 percent.

CDPQ, which oversees assets of C$365 billion ($292 billion), pointed to several factors to explain the strong return. They include exposure to sectors that showed resiliency last year, covid-19 notwithstanding, such as healthcare, services and technology. Value-adding support of the portfolio and CDPQ’s choice of fund partners were also cited.

Another likely factor is the recent pivot to direct deals. Over the past decade, CDPQ has reweighted its PE portfolio to direct investing from fund investing to achieve better performance. Today, more than 75 percent of assets are co-sponsorships and co-investments.

CDPQ continued to acquire direct stakes in businesses in 2020. Activity included a C$4 billion investment in French train maker Alstom as part of the company’s acquisition of Bombardier’s rail division. With the deal’s close in January, CDPQ owned 17.5 percent of Alstom.

In addition, CDPQ joined Qatar Investment Authority and other investors in an $800 million financing that launched Lloyd’s of London insurer Inigo. It also invested $200 million in Zevia, a US beverage company.

Partly due to new investments, PE portfolio assets increased by nearly C$15 billion year over year, bringing the end-of-December total to C$64 billion. Private equity now accounts for 17.6 percent of all CDPQ assets.

CDPQ’s good fortune in the market contrasts with the experience of the C$105 billion Ontario Municipal Employees Retirement System, which pioneered direct investing in the institutional community.

OMERS’ PE portfolio generated a negative net return of 8.4 percent in 2020, according to its year-end report. This compares against a benchmark of 9 percent and a 2019 return of 4.6 percent.

The performance is explained by the adverse influence of the health crisis, OMERS said. Businesses in the portfolio, especially those that are consumer-facing, were hit hard by the lockdown, while the slower deal pace caused delays in exits and acquisitions. Vue Entertainment, a European cinema operator, was the most impacted investment.

Other sectors targeted by the PE strategy proved more resilient in 2020 or are recovering, OMERS said. As with CDPQ, these likely include healthcare and technology.

Because of the negative return, PE portfolio assets fell by C$900 million year over year, bringing the end-of-December total to C$14.8 billion. Another factor was the sale of NVA, a veterinary and pet care services provider. Private equity now makes up 14 percent of OMERS’ entire asset mix.

Last year’s PE return is the worst for OMERS since the financial crisis. The direct buyout platform of OMERS Private Equity has historically done well, realizing net performance of 14 percent to 18 percent over the past decade, Buyouts previously reported.

OMERS last November signaled it is returning to acquisition mode, perhaps in expectation of post-pandemic opportunities. It announced the purchase of TurnPoint Services, an electrical, HVAC and plumbing services company, from Trivest Partners.