PSP Investments deployed record $5bn last year as PE strategy continues ramp-up

Public Sector Pension Investment Board invested C$6.8 billion ($5 billion) in the global private equity market last year, an all-time high for Canada’s fourth-largest pension system.

The outlay, reported in PSP Investments’ fiscal 2020 report, is 8 percent larger than the one made a year earlier. Growth was to a significant extent driven by co-sponsorships and co-investments, which reached C$3.4 billion last year, itself a record amount.

This is not surprising, as PSP was quite active on the deal front in 2019, especially in US and European financial, healthcare and tech sectors.

PSP partnered with EQT in the $10 billion acquisition of Nestle’s skin health business, now called Galderma. It also partnered with Permira in the $2.5 billion buyout of video telematics solutions provider Lytx, and with Onex Corp in the $1.8 billion launch of property and casualty insurer Convex.

In addition to its direct activity, PSP committed C$3.4 billion to fund partners. The total deployed last year brought PE portfolio assets to C$24 billion. This is only marginally above the previous annual total, however, due to C$6 billion in dispositions and financing proceeds.

Realizations in 2019 include PSP’s direct stakes in wound-care specialist Acelity and wealth-management platform Advisor Group. Sales of both companies were lucrative. Acelity’s deal leader, Apax Partners, was expected to earn a 3x multiple, PE Hub reported, while Advisor’s deal leader, Lightyear Capital, was expected to earn a 4x multiple.

Despite these exits, the PE portfolio generated a below-benchmark, one-year return of 5.2 percent in fiscal 2020. This owes mostly to the market impact of the covid-19 pandemic, the report said. In fiscal 2019, the portfolio’s one-year return was 16.1 percent.

Five-year ramp-up

Last year’s record deployment is the result of a greatly amplified PE strategy begun in fiscal 2016. The initiative boosted in-house personnel, resources and operations worldwide. It also expanded PSP’s relationships with outside funds and investment partners.

In a 2018 interview with Buyouts, Guthrie Stewart, PSP’s former global head of private investments, said the strategy was “all about building scale and generating returns.” A key to both objectives, he said, was an increased focus on direct activity, which today makes up roughly half of portfolio assets.

Since the new strategy’s launch five years ago, PSP has disbursed an unprecedented C$26.2 billion. Private equity now accounts for 14.2 percent of overall assets, compared to 9 percent prior to the ramp-up.

Because of its intensified investing, PSP is gaining clout as a market player. This is reflected in Private Equity International’s Global Investor 100, which this year ranked the pension system among the world’s 15 largest institutional investors in PE.

The PE group is led by Simon Marc, who was in June promoted to senior managing director and global head of private equity. Marc joined PSP in 2015 from Permira, where he was a principal for about six years, according to his LinkedIn profile. Before then, he held senior investment roles with Candover and Apax.

Marc heads a team of more than 40 investment professionals operating from offices in Montreal, London and Hong Kong.

PSP is the youngest of Canada’s four largest pension systems, managing the retirement savings of federal public employees, including defense forces and the Royal Canadian Mounted Police. At the end of March, it oversaw net assets of nearly C$170 billion.

Action item: See PSP Investments’ fiscal 2020 report here.