Ontario Teachers’ PE return tops benchmark in 2020 despite covid fallout

Ontario Teachers’ Pension Plan’s private capital group achieved a positive return last year despite a virus-roiled market that upended at least one portfolio company.

Ontario Teachers’, which oversees net assets of C$221 billion ($176 billion), earned a one-year return of 13.5 percent on its private equity investments in 2020, according to a year-end report issued this week. This compares against a 12.3 percent benchmark.

In fact, the portfolio did better than in 2019, when the one-year return was 9.4 percent, well shy of a 17.4 percent benchmark. PE investments in 2020 earned a four-year annualized return of 15.2 percent, against an 11.8 percent benchmark.

In the report, Ontario Teachers’ noted the majority of its PE holdings were negatively affected by the pandemic in last year’s early months. This was acknowledged in April by the private capital group’s ex-head Jane Rowe, who said some directly held businesses “may not survive,” remedial efforts notwithstanding.

This was the case for 24 Hour Fitness, acquired in 2014 by AEA Investors and Ontario Teachers’. The gym chain, which Rowe said was “impacted quite severely” by covid-19, filed for bankruptcy last June. It re-emerged later in the year, eliminating $1.2 billion of funded debt, but no longer sits in the portfolio.

Several other portfolio companies, however, showed resiliency in 2020, including those in healthcare, insurance, storage and tech sectors, Ontario Teachers’ said. Some even benefited from the lockdown, among them businesses focused on home-consumer products, medical labs, packaged foods and wine.

Buying & selling

Ontario Teachers’ private capital group, which invests directly and in PE funds, was active throughout last year both as a buyer and a seller.

Direct deals included wealth manager Allworth Financial, acquired alongside Lightyear Capital from Parthenon Capital, and eyecare services provider Nvision. Ontario Teachers’ also joined STG, AlpInvest Partners and others to buy Dell Technologies’ cybersecurity unit RSA for close to $2.1 billion.

In addition, TA Associates and Ontario Teachers’ sold a majority stake in Flexera, an IT infrastructure software provider, for about $2.9 billon, PE Hub reported. The buyer was Thoma Bravo. Waste manager GFL Environmental, co-owned with BC Partners, also raised almost $2.2 billion in its public debut.

On balance, net PE investments finished 2020 at C$41.8 billion, up 6 percent from C$39.3 billion a year earlier. Private equity now accounts for 19 percent of all Ontario Teachers’ assets.

Leadership change

Ontario Teachers’ private capital and long-term equities groups last year saw a change in leadership. Rowe, who held the top job for 10 years, was named vice chair, investments. She was replaced by Karen Frank, previously CEO of Barclays Private Bank.

Frank today leads a sector-oriented private capital team of 100-plus investment professionals operating from Toronto, London, Singapore and Hong Kong. The entire organization runs a global portfolio consisting of more than 60 private companies, significant investments in listed assets, and more than 30 PE funds.

Fund partners include AEA Investors, Apollo Global Management, BC Partners, Cinven, MBK Partners, PAG, RedBird Capital Partners, Silver Lake, Thoma Bravo and Warburg Pincus.

Ontario Teachers’ began 2021 with a flurry of new deals. Among them was this month’s agreement to buy Mitratech, a provider of legal and compliance software, for nearly $1.6 billion, PE Hub reported. The sellers are Hg and TA Associates.