Thursday, February 13, 2014

CPPIB Living High on the Hogg?

Anne-Sylvaine Chassany, private equity correspondent at the Financial Times reports, Cressida Hogg quits private equity group 3i:
3i investment veteran Cressida Hogg has left the UK-based private equity group, in the latest sign of instability following a strategic overhaul led by chief executive Simon Borrows.

Mrs Hogg, 44, helped set up 3i’s infrastructure unit in 2005 and will leave at the end of March to pursue a senior role outside the group, 3i said on Wednesday. She will be replaced by insiders Phil White and Ben Loomes. Mrs Hogg is joining Canada Pension Plan Investment Board to lead its infrastructure investments in the UK, according to people with knowledge of the move.

The move to CPPIB, a pensions plan that manages C$192bn of assets, also highlights how Canadian pension funds and sovereign wealth funds are becoming an appealing destination for private equity executives, who don’t have to worry about fundraising or quarterly earnings there.

“I am sorry to see Cressida leave our business and would like to thank her for her contribution over the years,” Mr Borrows said. “Her departure provides an opportunity to promote a number of very talented individuals and, in doing so, bring further energy and focus to investment origination and business development. It is a key strategic objective of 3i Group to further grow and develop its infrastructure business.”

Infrastructure investment was one of three key areas identified by Mr Borrows, a former investment banker, when he took over as chief executive in May 2012 with a mandate to restore 3i’s stature and boost a share price that had tumbled in the aftermath of the financial crisis.

After shutting offices in Asia and across Europe, and cutting about 40 per cent of the company’s workforce, Mr Borrows led the acquisition of Barclays’ European infrastructure funds management business, adding about £780m of assets under management and a team based in London and Paris.

However, with £1.56bn of assets under management as of September, 3i’s infrastructure business is the smallest of the group’s three pillars and its performance has been impaired lately by its assets in India. As of September, its $1.2bn India infrastructure fund was showing a 40 per cent loss because of the depreciation of the rupee and the country’s challenging economic environment.

Ms Hogg joined 3i in 1995 from JPMorgan and co-founded 3i’s infrastructure business in 2005 with former 3i chief executive Michael Queen. She became managing partner in 2009 and led investments including the buyouts of Anglian Water and Eversholt Rail Group, the rolling stock company.

Her departure follows the resignations last year of Denis Ribon, head of 3i’s healthcare investments; David Whileman, who stepped down in June as head of UK investments to join London-based private equity group Inflexion; and Tomas Ekman, head of Nordic operations.

The news comes after as 3i said it had dropped plans to raise a dedicated fund for acquisitions in Brazil after a decline in the Real led to a more than 20 per cent fall in the value of assets acquired there over the past 25 months.
Dan Dunkley of Dow Jones Financial News also reports, 3i's Hogg heads to C$193bn Canada scheme:
The C$193bn Canada Pension Plan Investment Board has secured the high-profile appointment of Cressida Hogg, the managing partner of UK-listed 3i Group’s infrastructure division. She becomes the latest private equity executive to join the ranks of one of Canada's large pension funds.

3i said in a statement today that Hogg will leave the firm in March, almost 10 years after forming the group’s infrastructure business in 2005. Hogg joined 3i in 1995 from JP Morgan and became a managing partner in 2009.

Hogg has agreed to join the Canada Pension Plan Investment Board to lead its infrastructure team from London and will begin her role in the next few months, according to people familiar with the situation.

In 2008, Hogg was listed as one of the most influential women in finance by Financial News. She was appointed managing partner of 3i’s infrastructure business in 2009 after Michael Queen vacated the position to take the top job.

While at 3i, Hogg was appointed a member of the UK government’s Infrastructure Advisory Council, created to strengthen links between the government and private sector.

Hogg’s hire is a further show of intent from Canada’s pension funds, which have hired some of the private equity industry’s top executives in a bid to move into direct dealmaking. Last month, Teachers’ Private Capital, the private equity arm Ontario Teachers’ Pension Plan, hired Duke Street dealmaker Iain Kennedy to help its push into direct deals, joining London head and ex-3i dealmaker Jo Taylor.

Following Hogg’s departure, 3i announced that Phil White and Ben Loomes have been appointed co-managing partners of its infrastructure business. White and Loomes will take charge of the division’s portfolio management and strategic development. 3i infrastructure’s fundraising and investment origination will be led by Senior Partner Neil King.

White joined 3i in 2007 having previously worked at Macquarie, WestLB and Barclays. Loomes joined in 2012 having previously worked Goldman Sachs, Greenhill and Morgan Stanley.

Simon Borrows, chief executive of 3i, said in a statement: “It is a key strategic objective of 3i Group to further grow and develop its Infrastructure business. In November last year, we announced the completion of our acquisition from Barclays of its European infrastructure fund management business."

He added: “The leadership changes announced today will bring a fresh impetus to the business and further underlines 3i’s commitment to the next stage of development of its Infrastructure platform.”

In an analyst’s note, Christopher Brown of JP Morgan Cazenove said: “While we are very sorry to see Cressida depart, given her successful leadership of the infrastructure business and the high regard in which she is held by investors, in our view the new leadership team - all of whom are well known to us - are very capable individuals with complementary skills. In our view they are well placed to drive the business forward.”
Let me congratulate CPPIB and Cressida Hogg, they both made the right move. Ms. Hogg is absolutely doing the right thing leaving 3i to head up CPPIB's infrastructure group. I have the perfect candidate to help her, someone with solid operational experience who actually ran an infrastructure project in Europe and will forward his cv to Mark Wiseman. (I already spoke to Gordon Fyfe about him back in October and forwarded him his cv but PSP gets very nervous whenever I forward them resumes, which is ridiculous. Gordon, talk to Jim Pittman and trust my judgment, I'm not here to screw you over, I just like ruffling your feathers and ego from time to time. I asked my friend to apply to the position of Senior Director, Infrastructure Investments at PSP and I applied to the position of Senior Manager, Economics and Strategy. If PSP is smart, it will hire both of us, and other people I recommended to Gordon, and pay us all extremely well. It's high time some people at PSP suck up their egos, admit their monumental mistakes of the past and look ahead, focusing on making money with the right people!).

Anyways, I was talking to a fixed income salesman yesterday about how it doesn't pay to work on the sell side anymore. All my friends that work at banks hate it. Their targets keep going up and their bonuses keep shrinking. That's why banks are losing their best traders to top hedge funds and others are starting their own hedge fund but that ain't easy in this environment. And as I mentioned in my last comment on hedge fund kings of 2013, CPPIB is launching an “in-house hedge fund” in its London office with the hire of fund management veteran Dureka Carrasquillo from Tranberg Capital Management.

In my opinion, moving from a hedge fund or private equity fund to a major Canadian public pension fund is a smart move, especially if you land the right job with the right culture. Why? Because you benefit from stability and a long investment horizon. The investment management industry is experiencing some major changes and the landscape for GPs in private equity and hedge funds is changing drastically. Why would you want the stress of fundraising when you can get billions handed to you and get compensated extremely well? In fact, while some well known hedge funds are chopping fees in half, the compensation at some of Canada's best known public pension funds keeps growing, making our public pension plutocrats extremely rich (Derek Murphy once told me it's the "best gig in the world." He can say that again, he won the Lotto 6/49 at PSP and has yet to contribute a dime to my blog even though I helped him set up PSP's PE department. I'm also waiting for Mr. Fyfe's contribution, it's the least he can do).

One thing to keep in mind about CPPIB's infrastructure investments. Unlike private equity where they co-invest with top funds, CPPIB does a lot of direct deals in infrastructure. Mark Wiseman and I talked about it the last time I was in Toronto. Mark says it makes sense to go direct in infrastructure but less so in private equity where "you can't outperform the David Bondermans of this world." I agree and think all the hype about Canada's global buyout kings is way overblown.

What else should you know about infrastructure investments?  It's not an easy environment. Pensions are taking on too much illiquidity risk and inflating an infrastructure bubble. I recently wrote about the Caisse blowing another $500 million in the wind and think it would have been wiser to invest that money elsewhere (Sabia is a great cleanup guy but he and his senior managers lack investment insight, and this will show up in their results going forward).

There are, however, some exciting infrastructure deals happening out there but they're not in Pensionland. Bloomberg recently reported that Lockheed Martin Corp. (LMT), the world’s largest defense contractor, and Ocean Power Technologies Inc. (OPTT) agreed to jointly develop the world’s largest wave-energy project off the coast of Australia:
The completed project will power about 10,000 homes as part of Australia’s effort to generate 20 percent of its electricity from renewable sources by 2020. It’s intended to showcase the commercial viability of using the motion of the seas as a source of electricity, Lockheed said.

Ocean Power’s PowerBuoys move up and down as waves rise and fall, converting mechanical energy into electricity that’s sent to shore through underwater cables. The project is receiving funding from the Australian Renewable Energy Agency.
That's exciting stuff, much more exciting than investing in risky toll roads or blowing billions on economically nonviable and environmentally unfriendly wind farms.

Finally it's worth noting that Ms. Hogg isn't the only high profile move in the private equity world. Harvard Management Co. which manages the $33 billion endowment needs to find its third private equity boss in less than a year. Lane MacDonald just left after three months on the job to become head of Crosby Advisors -- the New Hampshire-based family office for Fidelity Investments' billionaire Johnson clan.

Below, Bloomberg's Nela Richardson reports on the state of U.S. airports and infrastructure. She speaks on Bloomberg Television's "Market Makers." If you think America's crumbling infrastructure is bad, come to Quebec where you need to pray every time you go under a bridge or highway overpass.