OMERS Private Equity Shifts Strategy to Directs

OMERS Private Equity, the private equity business of Ontario Municipal Employees Retirement System, one of Canada’s leading pension funds, is shifting its private equity investment strategy to focus on direct deals. It will be selling down its fund commitments over time.

OMERS Private Equity has been making private equity investments for OMERS since 1987 and manages an estimated $4 billion in investments globally. The fund has a current target allocation of 10 percent but has the ability to go as high as 12.5 percent. Today, the actual allocation stands at just more than 8 percent. The current portfolio divides around 65-35 between fund commitments and directs. Eventually direct investments will represent up to 80 percent of the portfolio.

“At OMERS Private Equity we fundamentally believe active management adds value over passive management and we have the scale and skills to make private equity investments directly rather than through a private equity fund,” Paul Renaud, president and CEO of OMERS Private Equity, said in a prepared statement. “By doing this we reduce our costs (ie. no management fees and carried interest) and we control our investment decisions (both acquisitions and divestitures). Also, unlike private equity funds, we have the ability to hold an investment for an indefinite period of time.”

OMERS Private Equity plans to participate in mid-market buyouts in Canada, the United States and Western Europe. The team is looking to invest between $100 million Canadian ($94.0 million) and $500 million Canadian in each deal. The firms seeks businesses with talented and proven management teams, strong and defensible market positions, and products or services that have a well defined strategy for either organic or growth through acquisition.

For the time being, the team will continue to make fund commitments where market exposure is desired, and where OMERS Private Equity has no ability to do directs. In such relationships the firm will look for the ability of the fund manager to produce co-investment opportunities, a proven track record, and a strong investment team that is financially committed and like-minded when it comes to investment philosophy.

Funds in which OMERS Private Equity is currently invested include ones managed by Apax Partners Ltd, Asia Alternatives, Audax Group, Berkshire Partners, Celtic House Venture Partners, Charterhouse Capital Partners, Exponent Private Equity, Hellman & Friedman LLC, HSBC Private Equity Asia, Kilmer Capital, Kohlberg Kravis Roberts & Co, ONEX Partners, Ontario Venture Capital, Sagard Private Equity Partners, Terra Firma, Tower Brook Capital Partners, TPG, Tricap and Tricor Pacific Capital.

OMERS Private Equity is going down a similar route as that of Alberta Investment Management Co, as reported in the August edition of Buyouts. Like Renaud, CEO Leo de Bever is remodelling the private equity program to concentrate on direct investments and co-investments, rather than fund commitments. At present 70 percent of the value of the $1.4 billion Canadian private equity portfolio belongs to funds and the balance to direct investments. De Bever hopes to reverse this. Ontario Teachers Pension Plan has also demonstrated an increased commitment to directs with the opening of a London office 18 months ago to focus on European direct deals.