IMCO backs KKR’s and GI Partners’ flagships as part of breakneck investment pace

Investment Management Corp of Ontario sustained vigorous investing across 2021, closing C$2.3 billion ($1.8 billion) in private equity transactions, managing director Craig Ferguson told Buyouts.

The emerging institution, recently formed to help public sector funds scale and tap into private markets, committed nearly C$1.5 billion in capital to four new fund partners, Ferguson said. It also completed seven direct equity and co-investments totaling almost C$800 million.

“We had a strong year,” Ferguson said, fueled by a robust environment for doing deals and raising money as well as “increased demand from our clients.” Taken in combination, these factors put the PE strategy “on a glide path,” he said.

The new fund partners include PE giant KKR. IMCO invested in the firm’s 13th flagship buyout offering, KKR North America Fund XIII, which is targeted to raise $14 billion. KKR surpassed the target as of the end of September, collecting nearly $16.8 billion, but remains on the fundraising trail, Buyouts reported.

IMCO also invested in Ardian’s seventh flagship buyout vehicle, closed this year at €6.5 billion ($7.8 billion) and GI Partners’ sixth flagship buyout vehicle, wrapped up this year at $3.9 billion.

In addition, IMCO backed the debut buyout fund of Peloton Capital Management, led by former Ontario Teachers’ Pension Plan executives. It secured C$550 million in a May closing, Buyouts reported.

The fresh commitments bring IMCO’s fund partners to nine, Ferguson said. Others include Kohlberg & Company and Morgan Stanley Capital Partners.

Funds + directs

IMCO’s PE strategy takes a hybrid approach to investing. Focusing on the buyout segment in North America and Europe, it leverages GP relationships to make direct and co-investments. Opportunities are sourced in sectors like industrials, services, consumer, technology, media and telecom, healthcare and financial services.

The goal, Ferguson said, is to build “a repeatable and scalable” strategy that is differentiated and results in a portfolio with a broad 60:40 ratio of fund and direct investments. Directs at present account for roughly half of assets.

IMCO looks to make a co-investment “within the first year of a new relationship,” Ferguson said. This is evidenced in recent deals done alongside Ardian, GI Partners and KKR.

IMCO, for example, joined KKR in its acquisition of Neighborly, a provider and franchisor of home service brands, from Harvest Partners. It also invested with GI Partners in its acquisition of Valet Living, an amenity services provider to the multifamily housing industry. The sellers in this case were Ares Management and Harvest Partners.

Co-investing is “a good way to test drive with a GP,” Ferguson said. “You learn a whole lot about someone when you’re doing a transaction together.”

For its part, IMCO’s PE team works hard to make itself a co-investment partner of choice, Ferguson said. It is able to be flexible, with potential check sizes running from $50 million to $200 million-plus. It is also able to be collaborative, assuming an active or passive role in a deal and, as required, offering sector knowledge and value-adding capabilities.

In addition, IMCO offers its fund partners reliability and timeliness, sending “clear signals” about how quickly it can move on a transaction, Ferguson said. “We try to put ourselves in the GP’s position.”

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 manages more than C$73 billion of assets on behalf 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. Through expanded direct and fund investing, as well as rapid development of in-house staff and resources, IMCO aims to reach C$6 billion or greater of portfolio assets by 2025.

Thanks to this year’s breakneck investment pace, it is already two-thirds of the way there. As of the third quarter, PE portfolio assets totaled more than C$4 billion.

This is notable growth for a mid-sized institution with a newly minted PE team of seven investment professionals. Ferguson himself joined IMCO last year from Manulife Capital, the private markets arm of Manulife, where he was a managing director.

His colleagues include senior principals Anastasia Elia and David Lee. Lee also joined in 2020 from Manulife, where he was a director, while Elia came onboard this year from CPP Investments, where she was a principal. With continued hiring, the team is expected to get to 10 by early next year, Ferguson said.

IMCO earned a one-year net return of 34.2 percent from its PE investments in 2020, according to its annual report, outperforming a benchmark of 9.3 percent.

(This story was updated to alter the currency conversion for Ardian Buyout Fund VII to reflect the exchange rate at the time of fund’s closing.)