Mid-size pension OPTrust earns 24.7% return from PE portfolio in 2019

OPTrust has in recent years grown its private equity portfolio's share of direct deals and co-investments to roughly 50% of assets.

OPTrust, a C$22 billion ($16 billion; €14 billion) pension fund with an appetite for direct investing, realized a 24.7 percent net return from its private equity portfolio in 2019, according to a year-end report.

The performance, which improves on 2018’s 15.7 percent return, owes to several factors, including the sale of direct stakes held in companies by OPTrust’s private markets group. The group often undertakes partial exits, the report said, retaining minority positions to ensure exposure to future growth.

It is possible that one of the events contributing to last year’s strong performance involves Zelis Healthcare, a Bedminster, New Jersey provider of healthcare payments technology.

OPTrust in 2016 invested alongside fund partner Parthenon Capital Partners in the merger of three companies to form Zelis. Late last year, the business was combined with RedCard Systems, another Parthenon portfolio investment, with the backing of Bain Capital. The deal valued the new organization at about $5.7 billion, PE Hub reported.

It is not known if OPTrust continues to hold an interest in Zelis-RedCard. The pension fund declined to comment on this story.

OPTrust’s PE strategy balances fund partnerships with opportunities for making direct deals and co-investments. In recent years, the pension has ratcheted up allocations to direct activity, looking to create access to dealflow usually available only to larger institutional peers, Sandra Bosela, global head of private equity, told Buyouts in 2017.

Prior to 2012, the PE portfolio consisted mostly of funds and secondaries, with direct activity reflecting 20 percent of all assets. Today, directs account for roughly 50 percent of assets. The focus is on mid-market buyouts and other PE opportunities in North America, Europe and developed Asia, typically sourced with core fund partners and other investors.

Bosela, who joined OPTrust eight years ago from Edgestone Capital Partners, oversaw this reweighting of the PE portfolio. Together with Gavin Ingram, global head of infrastructure, she now leads the private markets group’s in-house team of 17 investment professionals operating from Toronto, London and Sydney.

OPTrust committed C$525 million to nine new PE investments in 2019, the report said. They include a minority investment in AmeriVet, a San Antonio, Texas veterinary clinic management business backed by Imperial Capital Group. OPTrust also put C$135 million to work in support of portfolio companies.

These deployments helped increase the PE portfolio’s net assets to C$2.8 billion at the end of December, or 12.9 percent of total assets.

OPTrust’s infrastructure portfolio generated a 12.8 percent net return in 2019, the report said. It holds net assets of C$2.4 billion, or 11.1 percent of the total.

OPTrust invests on behalf of OPSEU Pension Plan, the retirement system for Ontario public sector employees. Overall, the pension fund earned an 11.2 percent net return last year.

Action item: View OPTrust’s 2019 Funded Status Report here.