Tuesday, September 13, 2016

Big Executive Shakeup at CPPIB?

Barbara Shecter of the National Post reports, Mark Jenkins is leaving CPPIB, triggering executive shakeup at pension manager:
Mark Jenkins, global head of private investments at Canada Pension Plan Investment Board, is leaving the pension management organization, triggering an executive shakeup just three months after Mark Machin took over for outgoing chief executive Mark Wiseman.

Jenkins, who joined CPIB in 2008, is leaving on Sept. 16 to take a senior leadership role at The Carlyle Group.

Shane Feeney, who was head of direct private equity for CPPIB, will take over as global head of private investments. Ryan Selwood, who led the organization’s direct private equity activities in Europe, becomes head of direct private equity.

CPPIB also announced that Graeme Eadie, who was head of real estate investments, will now oversee both that department and the infrastructure and agriculture groups at the pension management organization that invests and manages assets on behalf of the Canada Pension Plan.

The CPP Fund was valued at $287.3 billion as of June 30.

Wiseman left CPPIB in June, about four years into an expected five to seven-year run as chief executive, to take a senior role at Blackrock, the world’s largest asset manager. The move surprised many observers, particularly in light of the much longer transition time when Wiseman took over from his CPPIB predecessor David Denison.

The pension organization’s board conducted an internal and external search for Wiseman’s replacement, settling on Machin, a 49-year-old British citizen who had joined CPPIB just four years earlier to oversee international investment activities. Machin was a 20-year veteran of Goldman Sachs, including six years running Goldman’s investment banking division in Asia. In mid-June, he became the first non-Canadian to lead CPPIB.

Jenkins, who graduated from Queen’s University in Ontario, also worked at Goldman Sachs before joining CPPIB, putting in more than 10 years in senior positions within the investment bank’s fixed income and financing groups in New York. He could not be reached for comment, but a source said his new job is expected to involve the debt markets, which was an area of focus earlier in his career.

CPPIB has kept deals moving through the pipeline despite the internal changes. On Monday, the Canadian pension organization teamed up with private equity player TPG Capital to invest US$500 million for a 17 per cent stake in MISA Investments Limited, the parent company of Viking Cruises.

Viking Cruises runs river and ocean cruises, operating more than 61 vessels based in 44 countries.
Scott Deveau and Devin Banerjee of Bloomberg also report, Carlyle Hires Jenkins to Head Global Credit From Canada Pension:
Mark Jenkins is joining Carlyle Group LP as head of global credit, exiting the Canada Pension Plan Investment Board amid a shakeup of the country’s largest pension fund.

Jenkins will oversee most of the Carlyle unit previously run by Mitch Petrick. He will also become a member of Carlyle’s management committee, the Washington-based asset manager said in a statement Monday. He’ll start later this month and be based in New York.

Jenkins’s departure comes less than four months after Toronto-based Canada Pension announced Mark Machin would take over as chief executive officer, replacing Mark Wiseman, who left to become a senior managing director at BlackRock Inc.

Canada Pension will create a new investment unit called Real Assets that will combine real estate investments, infrastructure and agriculture groups under one umbrella to be lead by Graeme Eadie, the fund said in a statement. Eadie has been with Canada Pension since 2005, most recently serving as global head of real estate.

Jenkins, who was global head of private investments and leaves on Sept. 16, will be replaced by Shane Feeney, the pension fund’s current head of direct private equity who has been with Canada Pension since 2010. Feeney will be replaced by Ryan Selwood, the pension fund said.

‘Bench Strength’

“These appointments demonstrate the deep bench strength and investment expertise we have developed at CPPIB,” said Machin. “Graeme, Shane and Ryan have been instrumental in a number of our major transactions and will no doubt continue to provide superb leadership in their new roles.”

Carlyle has been reviewing its global market strategies unit, which houses the firm’s credit and hedge funds, after the division’s leader Petrick left in May. Since then, Carlyle has sold one if its hedge funds, Emerging Sovereign Group, and continued to transition another, Carlyle Commodity Management, toward new investment strategies.

The firm’s credit funds manage loans, structure credit, private debt, energy credit and distressed debt.

“Our credit business is broad and deep with tremendous growth potential,” Bill Conway and David Rubenstein, Carlyle’s co-CEOs, said in the firm’s statement. “Mark is an experienced and proven investment leader who will help take our firm to a new level of success."

Canada Pension oversees the retirement savings of 19 million Canadians with C$287.3 billion ($219.4 billion) in assets under management.

Carlyle manages $176 billion in private equity holdings, credit assets, real estate and hedge funds. The firm was founded in 1987 by Conway, Rubenstein and Chairman Dan D’Aniello.
Matt Jarzemsky of the Wall Street Journal also reports, Carlyle Taps Pension Fund Executive to Run Credit Investing Operations:
LP hired a senior executive from Canada’s biggest pension fund to oversee debt investing, part of the asset manager’s effort to regroup from setbacks in its credit and hedge funds business.

Washington, D.C.-based Carlyle tapped Mark Jenkins, most recently head of global private investments at Canada Pension Plan Investment Board, for the newly created position, according to a statement.

The hire follows a series of setbacks in Carlyle’s global market strategies arm, which encompasses much of the firm’s investing outside of private equity and real estate. Like its peers, the firm has expanded beyond its roots in corporate buyouts over the years, seeking to diversify, boost assets and appeal to shareholders following its 2012 initial public offering.

Global market strategies has been a sore spot for Carlyle, largely because of struggles at its hedge funds Claren Road Asset Management, Vermillion Asset Management LLC and Emerging Sovereign Group LLC. In May, Mitch Petrick stepped down from a role running the $34.7 billion business. Carlyle tasked longtime private-equity executive Kewsong Lee to rebuild it and has said it is reviewing options to improve the unit’s performance.

Overall, global market strategies’ funds have fallen in four-straight quarters, including a 12% decline the first three months of the year.

Mr. Jenkins is focused on the unit’s credit investing, which includes energy lending, providing capital to mid-sized companies and bets on distressed debt.

Credit is an “established, profitable business” for Carlyle, Mr. Lee said in an interview. “Mark’s hiring makes a strategic statement that we are committed to investing in and growing the credit platform.”

Carlyle has been active in collateralized loan obligations, distressed investing and other areas of credit over the years. It may seek to build on its nascent debt business in Europe or providing bonds and loans to small companies or those with atypical capital needs.

During his eight years at CPPIB, he built the pension fund’s direct-lending business and oversaw its $12 billion acquisition of General Electric Co. ’s private-equity lending business, Antares Capital. Before that, Mr. Jenkins co-led Barclays PLC’s leveraged-finance business in New York and worked in Goldman Sachs Group Inc.’s finance and fixed-income departments.

CPPIB, like other Canadian pensions, takes stakes in funds managed by Carlyle and other firms but also directly invests in companies and other assets. In recent years, the pension has invested in department-store chain Neiman Marcus Group, retailer 99 Cents Only Stores and health-care information technology company IMS Health Inc.

CPPIB promoted managing director Shane Feeney to global head of private investments, succeeding Mr. Jenkins, according to a statement.
Lastly, FINalternatives reports, Carlyle Strengthens Executive Team With Jenkins, Sokoloff Hires:
Global alternative asset giant Carlyle Group has made two additions to its senior management team.

Mark Jenkins, former global head of private placements for the Canada Pension Plan Investment Board (CPPIB), has joined the firm as head of global credit, while it has also brought former Jefferies global head of financial sponsors Adam Sokoloff aboard as an executive in its private equity group.

Jenkins will be based in New York and will start at Carlyle by the end of September, the company said in a statement. During his eight years with CPPIB, he built and oversaw the principal credit investments group, the multi-strategy credit investment platform at CPPIB, led the acquisition of Antares Capital and the expansion of CPPIB’s middle-market direct lending efforts. Prior to CPPIB, he was co-head of leveraged finance origination and execution for Barclays Capital and worked for 11 years at Goldman Sachs & Co.

Sokoloff, meanwhile, joins Carlyle’s private equity efforts after a 14-year stint at Jefferies, where he was global head of the bank’s financial sponsor advisory business. He will be tasked with finding deals for the company’s mid-market funds, according to a Bloomberg article citing an email Sokoloff wrote to clients and friends on Monday.

Sokoloff left New York-based Jefferies in March after the firm merged its junk-rated loans and business into a joint venture with MassMutual Finance Group. Sokoloff was replaced by U.S. sponsors co-head Jeffery Greenip.

Carlyle raised $2.4 billion for its second middle-market equity group in February, according to Bloomberg. The buyout vehicle aims to make control investments of $20 million-$200 million in middle-market businesses.

Carlyle manages $176 billion in private equity holdings, credit assets, real estate and hedge funds across 127 funds and 164 fund of funds vehicles as of June 30, 2016. The firm was founded in 1987 by David Rubenstein, Bill Conway and Dan D’Aniello.
You can read more articles on Mark Jenkins leaving CPPIB here.

So, why is Mark Jenkins leaving CPPIB and more importantly, will CPPIB survive this latest high profile departure?

First, let me address the second question and calm a lot of nervous reporters contacting me worried that CPPIB is going down the drain after the departure of Mark Wiseman and now the departure of Mark Jenkins, global head of private investments.

There is no question in my mind -- none whatsoever -- that CPPIB can survive not just the departure of a Wiseman and Jenkins but even a Machin (just as it survived the departure of David Denison and André Bourbonnais).

In fact, in the Bloomberg article above, CPPIB's CEO Mark Machin stressed there is "deep bench strength and investment expertise" in this organization. Mark Wiseman told me the exact same thing after the announcement that he is leaving CPPIB a few months ago.

Reporters love making a big stink about these executive shakeups but if you've been around Canada's pension industry long enough, you'll know it's all part of the game, especially when a new CEO takes over.

Sometimes new CEOs make minor changes to the executive ranks and sometimes they make drastic ones. Personally, I hate it when they make drastic changes to place their "own people" in key positions because it's not only costly (ie., huge severance packages for letting go of senior investment officers for reasons other than performance) but it also disrupts the culture of the organization, typically in a negative way.

But I'm not a CEO of a major Canadian pension fund so to be fair, it's easy for me to make these judgment calls from the outside looking in and to be sure, often there are valid and good reasons to shake things up at the executive ranks (like getting rid of people who aren't on the same page as you when it comes to the culture of the organization).

Now, let's go over why Mark Jenkins left CPPIB to join the Carlyle Group. I have never met or spoken to Jenkins so here I'm going to speculate a bit and if I'm off, please be my guest and contact me to let me know.

I personally think Jenkins was disappointed he wasn't named CEO after Mark Wiseman stepped down to join Blackrock. He probably contacted a global executive search firm to let them know he's looking to move from CPPIB or more likely, he directly contacted senior executives at the Carlyle Group which is one of several private equity relationships at CPPIB (see the entire list of CPPIB's private equity partners here).

[Note: Another possibility is Jenkins advised Mark Machin and CPPIB's board before accepting this offer but that's not the way things typically go down.]

You have to keep in mind that people like Mark Wiseman and Mark Jenkins are not like you and me. Yes, there is no question they're exceptionally bright, hard workers with tons of great experience (and in the case of Jenkins, he has the coveted "Goldman pedigree"), but they also have a Rolodex of the who's who in the GP and LP world.

I underlined LP world for a reason. Blackrock and Carlyle didn't hire Wiseman and Jenkins for their brains and experience, they're bringing to the table something far more valuable, key contacts which consist of the top sovereign wealth and global pension funds of the world. And in the asset management business, it's all about garnering ever more assets so you can collect more fees.

This is especially true for a large alternatives shop like Carlyle which has been struggling lately and losing business to rivals like Blackstone, a powerhouse in alternatives which seems to be closing funds faster than it can open them. It also didn't help that Carlyle's venture into hedge funds has been an abysmal failure.

The point I'm trying to make here is it's one thing having Mark Wiseman or Mark Jenkins meet with your established or prospective limited partners and another having Joe Schmoe even if they have a solid pedigree. Why? Because a Mark Wiseman or a Mark Jenkins can better understand the needs of their clients as they sat in their chairs.

What else can I share with you? I'll admit when I last spoke with Mark Wiseman, I too was a bit surprised Mark Jenkins wasn't selected to replace him. I didn't know of Mark Machin but Mark told me that "Mark (Machin) was his right-hand who built CPPIB's Asian investments" and understood better than anyone the objectives of the organization and where it needs to go after he leaves (aka, he probably highly recommended Machin to CPPIB's board of directors and they fully agreed with him).

One last governance note. I'm a little uncomfortable watching senior executives leaving Canada's large pensions to join private sector funds. It's great for them to have opportunities others can only dream of but let's call a spade a spade, it's a huge governance faux pas, especially if they are directly responsible for investing billions in these funds.

[Note: US public pension funds have tight governance rules barring investment officers from joining a fund they directly invested with for a period of three or five years. Again, this is governance 101.]

Also, after Mark Machin was appointed CPPIB's new CEO, Leo de Bever, AIMCo's former CEO, appeared on BNN saying he's worried Canada's large pensions are going to become the breeding ground for private funds looking to snatch talent away.

Leo and I spoke last night after I wrote my comment on my conversation with HOOPP's Jim Keohane. Leo told me that HOOPP was the "first large Canadian pension to hedge against a decline in interest rates" and obviously being first mover on that front really helped HOOPP achieve its enviable super-funded status.

Also, please note I'm not a reporter, I don't tape my conversations, and I'm not always the best short note taker. I try to do my best when covering pensions and investments, and sometimes I get it right but sometimes I don't.

Jim Keohane sent me a nice email this morning thanking me for writing the comment on HOOPP and shared this: "I might have worded things slightly differently, but I think you captured the spirit of what we talked about quite well."

I thank Jim and beefed up my last comment on our conversation so you can all better understand the key measure of success at any pension. Leo de Bever told me the problem with using funded status is that US pensions use expected return to discount their future liabilities and that "7% or 8% discount rate is way too high" (again, if they used Ontario Teachers' or HOOPP's discount rate, they'd be insolvent).

I also want to stress something else, when I compare Ontario Teachers' to HOOPP, it's not to claim one is way better than the other. Both of these pension plans are regarded as the best plans in the world so comparing them is like comparing Wayne Gretzky to Mario Lemieux. They also have some key differences in size and maturity of their plans which makes a direct comparison difficult, if not impossible.

The point I'm trying to make, however, is anyone looking to be part of a great defined-benefit plan would love to be a member of HOOPP or Ontario Teachers and I don't blame them.

As far as CPPIB, I trust Mark Wiseman's judgment which is why I trust that Mark Machin and his new senior executives are all more than qualified to take over and deliver on the fund's long term objectives during the next phase which will be far more challenging in a ZIRP and NIRP world.

So the next time you hear some reporter lament about a big shakeup at CPPIB, please refer them to this comment and tell them to relax and stop spreading misleading information.

Below, an AVJC interview (from last July) where CPPIB's CEO Mark Machin discusses investments in Asia and admits it is not for everyone (at the time, he was head of international and Asia investments).

Second, Christopher Ailman, chief investment officer at California State Teachers Retirement System, discusses socially responsible or sustainable investing, where he's finding opportunity and his outlook for China. He speaks to Bloomberg's Haidi Lun on "Daybreak Asia."

Good discussion and I agree with Ailman, "low and slow" is going to define the investment landscape for the foreseeable future. By the way, his "friend from British Columbia" that he refers to is Gordon Fyfe, bcIMC's CEO, who sits with him and Lone Star's John Grayken on the advisory board of Emory's Center for Alternative Investments (click on image).


Lastly, from the Delivering Alpha conference in New York City, Ash Williams, Florida State Board of Administration, discusses the looming danger of underfunded pensions as many state and local pensions see their liabilities grow at much faster rates than their assets.

Interesting discussion but let me correct Mr. Williams on one thing, the Florida State Board of Administration doesn't have the lowest operating costs in North America (HOOPP does at 30 basis points however Florida is a larger pension). But he's right, there's no question that defined-benefit plans are way better than defined-contribution plans and far less costly and better for the overall economy if stakeholders get the governance and risk-sharing right (like HOOPP, Ontario Teachers and other Ontario plans have done).

Also, if you ask me, the United States has to create a similar universal pension modeled after the CPP and CPPIB (enhanced Social Security) so all its citizens can retire in dignity and security but again, they need to get the governance right to avoid undue political interference. I doubt this is possible in the US where there are strong vested interests (powerful hedge funds, private equity funds and mutual funds) that will resist such reforms.



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