CPPIB’s PE strategy shift pays off

The $412bn pension's recent moves to integrate its PE activities and expand the program's global reach appeared to bear fruit in the 2020-2021 fiscal year.

Canada Pension Plan Investment Board saw windfall returns from its private equity investments in the 2020-to-2021 fiscal year, the pension system said, vindicating a recent consolidation of PE operations and expansion in global activity for its private equity portfolio.

CPPIB splits it private equities portfolio return by region: Canadian, foreign and emerging. Across the board, returns were improved. As of March 31, Canadian holdings returned 22.8 percent in FY21 after losing 5.1 percent the year before, foreign holdings returned 34 percent compared to 6 percent the year before and emerging market holdings returned 38.5 percent, an improvement from 8 percent the year before.

Canadian holdings took up 0.2 percent of the overall portfolio, foreign holdings 22.8 percent and emerging markets 3.7 percent. Foreign private equity holdings grew the most year over year, having taken up 21.1 percent as of March 30, 2020.

In 2018, CPPIB private equity head Shane Feeney told Buyouts about the pension’s decision to integrate the fund’s direct investments, fund investments, secondaries and Asia investments onto one platform.

“We need to see as many attractive opportunities as we can, as much deal flow coming through the funnel as possible, to scale assets with the best risk-adjusted returns across products and geographies,” Feeney said.

At the time, the private equity portfolio was valued at C$80.3 billion ($66.6 billion). As of March 31, 2021, that had increased to C$132.9 billion ($110.3 billion). It now takes up over a quarter of the fund’s total allocation, or 26.7 percent.

The fund’s investment highlights from 2020-2021 show a focus on the pension’s venerable “Canadian model” of direct investments being handled by in-house staff. These included a $300 million investment in Virtusa Corporation alongside Barings Private Equity Asia and a $160 million commitment to invest in CITIC aiBank, an internet-focused consumer finance bank in China.

One major fund commitment was $750 million to Silver Lake‘s most recent flagship fund, which will focus on large growth investments in technology, media and telecommunications. That fund closed at $20 billion amid a tech fundraising bonanza.

As Buyouts reported, CPPIB also shopped around a $1 billion to $2 billion portfolio on the secondaries market, and affiliate title Secondaries Investor reported in October the sale had closed at over $2.5 billion. The fund was also involved in a secondaries process led by Canadian firm Georgian Partners, Buyouts reported.

The fund just saw a massive leadership upheaval, with chief executive officer Mark Machin abruptly resigning after it was revealed he had traveled to the United Arab Emirates to receive a covid-19 vaccination. He was replaced by John Graham.

The fund’s value as of March 31, 2021 was C$497 billion ($412.34 billion) and its overall return was 20.4 percent for the year.

Action Item: read more about CPPIB’s FY21 performance here.