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Emerging institution IMCO earns outsized private equity return in 2020

IMCO generated a one-year net return of 34.2% from its PE investments last year, easily outperforming a benchmark of 9.3%.

Investment Management Corp of Ontario, recently formed to help public sector funds scale and tap into private markets, realized a strong private equity return in 2020, despite the fallout of covid-19.

IMCO generated a one-year net return of 34.2 percent from its PE investments last year, according to an annual report issued this week. The portfolio easily outperformed a benchmark of 9.3 percent.

The return owes to IMCO’s efforts to preserve value during the health crisis and reposition the portfolio through new direct and fund investments, the report said. Another factor was the initial public offering of Corsair, a gaming hardware maker backed by EagleTree Capital.

As it grows a PE portfolio, the C$73 billion ($58 billion) IMCO is building capabilities for making direct and co-investments. Its focus is private companies in North American and European growth sectors like consumer, financial services, healthcare, industrials, services and technology/media/telecom.

Gains appear to have been made on this front in 2020. As of December 31, the net asset value attributable to directs was 50 percent of the PE portfolio, the report said, with funds making up the rest.

Highly active

IMCO was an active direct investor last year. Its deals included a $50 million co-investment alongside Kohlberg & Company in the acquisition of PCI Pharmaceutical Services, a pharmaceutical and biopharmaceutical supply-chain solutions provider. Mubadala also invested.

IMCO also partnered with TorQuest Partners in the acquisition of VersaCold Logistics Services, a cold storage warehousing and food logistics business. OPTrust was another co-investor.

Along with direct deals, IMCO was busy in 2020 writing checks to new fund partners. It committed a total of C$1 billion to three mid-market buyout vehicles, Buyouts reported last October. They are Kohlberg Investors IX, managed by Kohlberg; Nordic Capital X, managed by Nordic Capital; and North Haven Capital Partners VII, managed by Morgan Stanley Capital Partners.

On balance, net PE investments finished 2020 at C$2.7 billion, up 42 percent from a year earlier. Private equity now accounts for 4 percent of all IMCO assets.

Big PE ambitions

IMCO was launched in 2016 to pool and invest Ontario public sector fund assets, taking as a model systems like Caisse de dépôt et placement du Québec. Today, it oversees the assets of Ontario Pension Board, Provincial Judges’ Pension Board, WISE Trust and Workplace Safety and Insurance Board.

The Toronto-based institution has big ambitions for its PE strategy, Private Equity International reported in February. Through growth in direct and fund investing, as well as rapid development of in-house staff and resources, IMCO aims to reach C$6 billion or more in portfolio assets by 2025.

Spearheading the initiative is Craig Ferguson, IMCO’s managing director, private equity. Ferguson joined in 2020 from Manulife Capital, the private-markets arm of Manulife, where he was a managing director. He replaced Sean Macaulay, who is now an operating partner with EagleTree.

IMCO also made progress with its C$4.6 billion credit strategy in 2020, earning a one-year net return of 11.1 percent against a 6.1 percent benchmark. Activity included a $350 million commitment to Oaktree Capital’s eleventh distressed debt fund, and a $200 million commitment to Sagard Holdings’ second direct lending fund.