OMERS’ new PE chief doubles down on direct investing amid turbulence

Michael Graham, OMERS’ new global head of private equity, is planning to reinforce the pension fund’s pioneering direct investment strategy, increasingly with an eye for bargains in a market down-cycle.

“OMERS has over 14 years created an internal team that operates like a general partner team, making long-term direct buyouts in sectors we’re good at,” Graham told Buyouts. “It remains a strategy we like and will continue to roll out and build on.”

Graham, who in April took the reins of OMERS Private Equity from Mark Redman, said a near-term priority will be safeguarding the portfolio as “we navigate the uncertainty of the covid-19 pandemic.” The focus, he said, will be “on supporting our companies and ensuring they are well-positioned to weather the storm.”

Graham also sees abundant deal potential in a global economy battered by the health crisis: “Values have recently been tough to find. As the market gets choppier, we see lots of opportunities for buying great companies at better prices.” OMERS, he added, “has the capital to deploy to these.”

OMERS cut its teeth with direct investing in the last downturn, Graham said.

After a decade of gearing its PE strategy to funds, OMERS in 2006 took the unprecedented step of doing a solo deal. The target was CCNMatthews, a news distributor later renamed Marketwired.

More deals followed with onset of the financial crisis, forming the nucleus of a direct buyout platform. Over 2007-09, OMERS acquired businesses like baked foods maker Give & Go, lab services provider Maxxam Analytics and railway products supplier Nordco.

OMERS also began assembling a direct investment team and locating it globally. Graham, then a senior managing director, played an essential role in this effort, opening the New York office in 2009 and taking charge of a fast-growing North American operation.

Returns, control, longer holds

Graham said the first run of solo investments met with “early success,” performing better than fund investments during the Great Recession. This confirmed an emerging OMERS view that stronger PE returns could be earned by allocating more capital to directs.

Along with improved returns, OMERS saw the direct platform as a way of gaining “control over our money and over our companies,” Graham said. The strategy also aligned with a longer-term perspective on asset-holding, relative to other PE firms.

Today, OMERS focuses exclusively on directs, making control-stake investments in North American and European businesses with EBITDA of up to $150 million. A team of 50-plus investment professionals source opportunities in business services, healthcare, industrials and software sectors.

OMERS has backed 30 companies since the first solo investment in 2006. The most recent addition is Community Vet Partners, a network of animal hospitals acquired earlier this year for about $600 million, according to PE Hub.

The 14-year direct investment strategy, which remains unique in the global institutional community, has been consistently supported by OMERS’ board, Graham said, because “it has worked for us.”

Over the past decade, the direct buyout platform realized a net IRR ranging from 14 percent to 18 percent, a person familiar with the matter told Buyouts. Graham declined to comment.

Toronto-based OMERS oversaw net assets of C$109 billion ($77 billion; €70 billion) at the end of December. The PE portfolio’s net assets, which include the assets of OMERS Growth Equity and OMERS Ventures, totaled C$15.7 billion.

The above is an extract of broader interview with Michael Graham to be featured in the May issue of Buyouts.