Jane Rowe, head of the private capital group at Ontario Teachers’ Pension Plan, said some portfolio companies may not survive the impact of covid-19 despite best efforts to support them.
Rowe, speaking Thursday at “Public Pensions and the Pandemic”, a virtual panel of pension fund executives hosted by the Canadian Club of Toronto, said the health crisis is differently influencing each of the 60-plus private companies in which Ontario Teachers’ holds an ownership stake.
“If I think about our gym business, it has been impacted quite severely,” Rowe said. “If I think about our garbage pickup business, it has not been impacted in the same kind of way.”
Rowe said Ontario Teachers’ has “upped our engagement model” with portfolio companies, holding weekly board meetings. It also has been running stress tests with management teams to anticipate how businesses might be hit over the “next three months, six months and nine months,” in part to ensure funding is available as needed.
The portfolio is responding “as our stress tests have anticipated,” Rowe said, reinforcing confidence that liquidity requirements can be met.
“Some may not survive this event,” Rowe said, “but we’re here to support them and try to be a value-added partner.” As part of its efforts, she noted, Ontario Teachers’ has recruited BCG and KPMG to help portfolio companies understand and tap into the “plethora of government programs” set up for them globally.
Blake Hutcheson, the incoming CEO of OMERS, echoed Rowe’s comments, saying businesses in sectors like hospitality, oil and gas and retail are being hit especially hard. As a result, he said, “some won’t make it.”
Rowe said while Ontario Teachers’ companies are impacted by the health crisis wherever they are located, “pockets of recovery” are becoming apparent.
The Asian portfolio could potentially experience a V-shaped recovery, with some companies “pivoting more quickly” from shutdowns in countries and regions like China, Hong Kong and Singapore, Rowe said. In Europe and North America, “it’s still too soon to tell.”
Rowe said Ontario Teachers’ is benefiting from a balanced portfolio and focus on private companies that “work well in the long-term and through different cycles.”
The portfolio is constructed to include companies that are “not typical LBO,” Rowe said. These businesses, backed by long-term equities, are showing more resiliency in the current environment, “performing better than most of our leveraged buyout assets.”
Along with supporting the portfolio, Ontario Teachers’ top priorities right now include ensuring the health and safety of its employees and employees of portfolio companies.
“If we have a comfort on health and safety and on liquidity and contingency planning,” Rowe said, “then we’ll also thinking about what some of the future opportunities might be.”
Rowe said opportunities going forward will be viewed through a “global lens.” As the recovery from covid-19 is likely to occur “at different paces in different places,” she said, Ontario Teachers’ global positioning will give it an advantage. This will include an ability to participate in growth trends “over the next couple of decades.”
Kevin Uebelein, CEO of Alberta Investment Management Corp, agreed, saying “if you have a strong liquidity situation, this is really the moment to start making some profits.”
The virtual panel, sponsored by PwC, was moderated by Mark Wiseman, formerly global head of active equities at BlackRock. Wiseman was CEO of Canada Pension Plan Investment Board from 2012 to 2016.
Ontario Teachers’, which held more than C$207 billion ($148 billion; €136 billion) in net assets at the end of December, this week announced Rowe will take on the new role of vice-chair, investments, effective October 1.
Action item: View the webcast of the Canadian Club of Toronto’s virtual panel here.