Newly minted OMERS Growth Equity eyes long-run tech disruption

  • Why this is important: OMERS growth equity is looking to invest in mid-stage disruptors
  • AUM: Parent OMERS US$73 bln

OMERS Growth Equity, the growth equity arm of C$97 billion ($73 billion) Canadian pension fund OMERS, is looking to invest in mid-stage companies poised to reshape traditional sectors.

OGE, led by Head of Growth Equity Mark Shulgan, hired in 2018 from Canada Pension Plan Investment Board, launched this year as a third pillar of OMERS Private Equity.

Filling a space between the PE group and OMERS Ventures, it represents a “natural evolution” in the direct-investing strategy pioneered by OMERS, Shulgan said, focused on “significant growth at the mid-stage end of the market.”

OGE will be a minority investor, writing equity checks of $50 million to $250 million and taking board seats.

Its target opportunities will include a range of mid-stage businesses in growth mode. This includes everything from scaling operations and making acquisitions to broadening product lines and entering new markets.

Investees will for the foreseeable future be North America-based, Shulgan said. He does not rule out, however, eventually pursuing opportunities in Europe and Asia, as other OMERS affiliates have done.

Long-term growth drivers

A key feature of OGE’s investment strategy will be creating exposure to macro trends driving long-term disruption and competitive change in major sectors of the economy, Shulgan said.

Entrepreneur-led companies that harness these trends will be of particular interest, he said.

To illustrate, Shulgan pointed to Purpose Financial, a Toronto financial services company that OMERS backed in 2017 and that now resides in OGE’s portfolio.

Purpose was founded in 2012 by ETF entrepreneur Som Seif. A manager of ETFs, mutual funds and other assets, its growth plan includes leveraging fintech, such as digital banking and crypto-blockchain.

It is doing this partly by investing. Last year, Purpose acquired Montréal online lender Thinking Capital and partnered in creating Ethereum investment platform Ether Capital, among other deals.

This activity is intended to help Purpose anticipate financial industry disruption and build an asset base of C$25 billion-plus.

OGE aims to invest in more businesses like Purpose, including in spaces where OMERS has developed a track record, such as healthcare and software, Shulgan said.

In fact, OMERS affiliates will likely be a source of deal flow, Shulgan said. He cited the example of Oxford Properties, which may suggest innovative opportunities in commercial real estate.

Another of the strategy’s features will be a long horizon, providing OGE with a “key differentiator” in the market, Shulgan said.

Gearing up for new deals

Shulgan is refining OGE’s strategy and managing existing investments. He is also busy setting up shop and hiring additional senior- and junior-level personnel, he said.

The Toronto team so far includes Paul Manias, a managing director who previously was a vice president at OMERS Infrastructure.

It also includes Lisa Conway, a director who joined last year from U.S. investment bank PJT Partners, Olivia Aylon and Peter Hass, both associates, and Grant Wallace, an analyst.

Shulgan and his team are already sourcing mid-stage opportunities, aiming to close a first deal in the months ahead.

While OGE is a stand-alone operation, it may invest alongside the PE group and OMERS Ventures. It is also open to investing alongside external funds and institutions, Shulgan said.

Shulgan was hired by OMERS last September to run OMERS Platform Investments, which was subsequently rebranded and rolled into OGE.

He joined from CPPIB’s innovation-focused growth equity arm, Thematic Investing, where he served as a senior portfolio manager. Co-founded five years ago by Shulgan, it now oversees a global portfolio of more than C$5 billion.

Before joining CPPIB in 2009, Shulgan was a vice president at Fortress Investment Group.

OMERS PE investing in 2018

OMERS, which invests on behalf of Ontario municipal employees, committed C$10 billion to private investments in 2018.

Much of this activity was accounted for by the PE group and OMERS Ventures, the combined investments of which totaled C$19 billion at the end of December, compared with C$14.4 billion a year earlier.

The overall portfolio earned a net return of 13.5 percent in 2018, up from 11.1 percent in 2017.