Canada’s pension giant to double private equity exposure by 2030

Omers’ Mark Redman explains how the fund aims to allocate more to private equity using a ‘cuddly capital’ approach

The head of buyouts at one of Canada’s largest pension plans says the amount of cash it plans to invest in private equity will double to around C$30bn in the next 10 years.

Mark Redman, global head of private equity at Ontario Municipal Employees Retirement System, says the pension plan expects total assets under management to increase from C$100bn to C$200bn by 2030, with 15% of that targeted at private equity.

Omers, like its larger Canadian peers, is under pressure to boost returns as plan beneficiaries live longer and because slow economic growth and low interest rates are a drag on fund performance. Many large North American pension funds are allocating higher amounts of capital to alternative investments, including private equity.

The Canada Pension Plan Investment Board has boosted buyout assets to C$93bn, up from 20.3% of the total fund in 2018 to 23.7% in 2019. The California State Teachers’ Retirement System, which has $226.5bn in AUM, and the California Public Employees’ Retirement System, which has $355bn in AUM, have both also adopted new models that emphasise direct and co-investments in private equity to boost returns and lower their fees. Omers’ provincial peer, the Ontario Teachers’ Pension Plan, has C$32bn in private equity assets.

Redman says Omers plans to further grow and strengthen the firm’s private markets business. “You stand still in this business and you’re dead,” he says. “The world is moving quicker and quicker.”

The buyout arm currently has $14.2bn in assets under management, with 85% invested directly. About 21% of that is invested in Europe, worth about $3bn.

European operations

Redman moved to Europe 10 years ago to set up private equity operations in the region.

The 51-year-old struck Omers’ first European deal in 2009, taking a minority stake in commercial lender Haymarket Financial. Since then, the equity cheques for acquisitions have gone from C$100m to C$600m.

Over 10 years, the private equity investments have delivered an internal rate of return of more than 16% net, according to people familiar with the fund. Omers declined to comment.

So far, Redman’s focus has been on the UK, Benelux and France. In 2018, Omers acquired London-based recruitment firm Alexander Mann Solutions in a $1.1bn deal. The fund also bought French industrial measurement company Trescal for €670m in 2017. Now, Redman has his sights on opportunities in other geographies, mainly German speaking Europe.

Redman is also planning to increase the firm’s investment in private credit. Pension funds have traditionally steered clear of private credit, but it has become increasingly popular recently as yields elsewhere have become hard to come by. Calpers’ chief investment officer Ben Meng said in a December board meeting that the pension fund should include private debt in its portfolio as well. Many large buyout firms have already allocated billions of dollars to specialised debt divisions, making the sector increasingly competitive.

Redman said it’s important for Omers’ venture capital arm to work closely with the private equity division.

“Venture capital might only account for 1% of the balance sheet, but it can influence 99% of it,” Redman says. “There are obvious synergies between the two – one world disrupts the other – and so it makes sense to bring our colleagues into discussions.”

London hires

Omers Ventures opened an office in Silicon Valley in January 2019 as part of the group’s plans to find new businesses to invest in. A few months later, it set up a branch in London. The pension fund hired former Balderton principal Harry Briggs and Tara Reeves, the co-founder of carsharing company Turo. In March, it launched a €300m fund targeting the European market and in December hired a former Uber executive as managing partner.

Other financial institutions, including Bank of Montreal and the multinational technology company Cisco have also committed cash to Omers Ventures. The unit has so far invested $500m in 41 disruptive technology companies and has $700m under management. In Europe, it has invested €76m into companies including content management infrastructure provider Contentful, insurance tech startup Wefox, and digital veterinarian FirstVet.

Redman says the fund is proud of what he calls “cuddly capital”– the reputation of Canadian pension funds as being “the nice guys” of private equity. “As part of a pension fund, we need to take a more conservative approach. We’ve been deliberately slow and steady doing one to two deals a year.”

He added he isn’t under the same pressure as traditional buyout groups to raise third party capital. It also doesn’t have to pay carried interest out to its investment teams.

Redman’s business operates with a smaller team than some of its much bigger buyout rivals. Omers Private Equity has 50 executives globally, with 16 based in Europe. The hit rate in terms of offers made versus deals won ran at about 50% last year.

It typically holds its investments for one to two years longer than the average three to five year holding period for buyout groups, so it can afford to be more patient.

Source: Financial News

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