CDPQ’s Martin Laguerre plots ambitious course for private equity strategy

Martin Laguerre, Caisse de dépôt et placement du Québec’s new private equity chief, aims to widen the scope of the pension system’s investing in a post-covid market.

“There is definitely alpha out there,” Laguerre told Buyouts in his first interview since becoming head of private equity and capital solutions. To tap into it, he wants to “expand the addressable market” through a series of fresh initiatives – such as increasing CDPQ’s presence in Asia, doing more mid-cap deals and providing a credit option.

Laguerre, who took the top job in December, inherited a PE strategy that looks quite different today compared with just a few years ago.

CDPQ, which holds C$365 billion ($296 billion) in assets, once created PE exposure by committing capital to general partner teams – a decade ago, more than 100 of them. That number was pared down to about 20-plus in a reweighting of the portfolio toward direct investing. At present, roughly 75 percent of assets are direct and co-investments.

The shift was accompanied by other measures, such as broadening CDPQ’s global focus and targeting high-growth sectors. Additional sums were also pledged to core fund partners – big brands like Ardian, Blackstone, Brookfield, CD&R, CVC, KKR, Silver Lake and Stone Point – and to deals with a more diverse set of partners, such as corporations, families and institutions.

The goal was to juice performance. In 2020, PE investments earned a net return of 20.7 percent against a 9.9 percent benchmark, providing some validation to the strategy shift. Portfolio assets rose 29 percent to C$64 billion.

Branching out

Laguerre wants to build on this track record, keeping CDPQ’s existing directs-to-funds ratio but branching out into new asset classes, geographies and markets. “We’re not sitting on our laurels,” he said.

One area of post-pandemic opportunity, Laguerre said, is Asia, which “is growing faster than the West” thanks to “a lot of innovation.” To illustrate, he pointed to this year’s $147 million financing of Druva, a Silicon Valley cloud data protection business with Asia-Pacific roots. CDPQ led that deal.

Druva also highlights CDPQ’s interest in sectors “where we have conviction,” Laguerre said. In addition to technology, these include financial services, healthcare and industrial services. To access a fuller range of sector opportunities, the strategy’s traditional emphasis on buyout deals will be balanced half-and-half with growth equity and venture investing.

As part of this, Laguerre said direct activity will take a more “mid-market approach.” CDPQ in the past has favored large-cap buyouts where it can make substantial minority investments, typically $300 million to $1 billion. It has done this in many sponsored deals, involving companies like security provider Allied Universal (2019) and car battery maker Clarios (2018).

Along with a continued large-cap focus, Laguerre expects to see more investing below the $300 million mark. “There are other ways to play private equity,” he said.

Equity plus debt

Another opportunity set is private debt. Laguerre was hired by CDPQ two years ago from CPP Investments to run capital solutions, a C$5 billion specialty finance, quasi-equity and opportunistic credit unit. With his promotion, the unit was merged with the PE platform, creating “a new way to differentiate ourselves” as an investor, he said.

“We see this as giving CDPQ a credit angle,” Laguerre said. “Instead of taking an equity piece of a major deal, we can offer a debt solution.”

Investing under the capital-solutions banner has gained profile of late. Last year, CDPQ and BNP Paribas were the lead arrangers and lenders of a $300 million warehouse facility for Atlas Air Worldwide’s Titan Aircraft leasing business, a joint venture with Bain Capital’s credit arm.

While he was at CPPIB, and in prior years with GE Capital, Laguerre specialized in renewable power – instilling in him an appreciation of climate change. As CDPQ works to achieve a carbon-neutral portfolio by 2050, he said the PE strategy will also emphasize energy-transition opportunities.

Adding value

When exploring new areas of activity, Laguerre said CDPQ will step cautiously: “We usually start indirectly where CDPQ does not have capabilities and then migrate to directs.” There is merit in the learning experience, he said, as a way to “get credentials.”

As it expanded direct and co-investments, CDPQ brought on talent and resources to global teams. This will remain a priority, Laguerre said, to support value creation, minimize risk and ensure quality deal flow.

“We want to prove that along with underwriting directs, we can add value,” Laguerre said. “The more we earn the trust of GPs, the more we can access opportunities.”

This year, a group of operating partners set up for this purpose hired its final members, Buyouts reported. Remarkable for a pension system, the in-house team consists of eight former executives with PE backgrounds who are involved in all facets of CDPQ investment, not just portfolio oversight.

Leading the group are AJ Rubado and Lorenzo Levi, managing directors and operating partners, private equity. New York-based Rubado arrived in 2018 from Reservoir Capital, where he was a managing director. Before, he was a director at KKR Capstone.

Levi, based in London, came onboard in 2019. He was previously a managing director with Terra Firma and an operating partner with Apollo.

Differentiated investor

“We were drawn by the strategy and the ambition of CDPQ in private equity,” Rubado said. Levi agreed, noting the operating model for the core direct portfolio derives from what CDPQ learned as a limited partner: “It saw what was successful in operating teams and what was dysfunctional.”

Though the multilingual operating group is spread across North America, Europe and Asia, it is fully integrated, Rubado and Levi said. Each member covers three to four portfolio companies, assuming a governance role – sometimes on behalf of CDPQ as the top shareholder.

CDPQ’s operating team “differentiates” it as an investor in a competitive post-covid market, Rubado and Levi said. So too does its deep pockets and long-term horizon. These features are especially important when approaching business owner-operators independent of a sponsor.

Laguerre oversees a PE investment staff of more than 60 in Montreal, New York, London, Singapore and other global locations. The capital solutions unit employs 20.

CDPQ was ranked second in Private Equity International’s 2021 list of the world’s 100 largest investors in private equity.

(This story was updated to include this year’s edition of Private Equity International’s Global Investor 100.)