CDPQ, CPP Investments and OTPP Help Finance an Insurance Acquisition

Benefits Canada reports CDPQ, CPP Investments and Ontario Teachers’ invest in an insurance company:

The Caisse de dépôt et placement du Québec, the Canada Pension Plan Investment Board and the Ontario Teachers’ Pension Plan are entering into subscription agreements with Intact Financial Corp. to support its conditional acquisition offer for RSA Insurance Group.

The Caisse, the CPPIB and the Ontario Teachers’ are committing $1.5 billion, $1.2 billion and $500 million, respectively.

“This is a significant opportunity to acquire an interest in a highly-differentiated insurer with a track record of growth and outperformance,” said Bill MacKenzie, managing director and head of active fundamental equities at the CPPIB, in a press release.

In a statement provided to Benefits Canada, Karen Frank, senior managing director of equities at the Ontario Teachers’, said the pension fund is pleased to be able to support Intact in the acquisition. “We have full confidence in Intact’s ability to generate shareholder value with this transaction given their strong track record over many years.”

In other investment news, the Ontario Teachers’ is part of a joint US$1.25 billion investment in Equis Development Pte Ltd., a company specializing in renewable energy, power grid distribution and transmission and waste infrastructure assets in the Asia-Pacific region.

Other investors include the Abu Dhabi Investment Authority and the Equis management team. EDL is currently developing or constructing 40 assets across its target markets.

“The company fits with our greenfield and renewables strategy to focus on development stage opportunities through high-quality platforms,”said Ben Chan, regional managing director for Asia at the Ontario Teachers’, in a press release. “We believe this investment will help us build scale in Asia and grow our exposure to renewables.”

I will discuss the Equis Development deal below.

Let me begin by telling you Mihail Garchev is hard at work on Part 5 of our integrated Total Fund Management series, working on case studies and he needed a bit more time. We will present Part 5 next week.

Now, Intact Financial Corporation put out a press release announcing an agreement with cornerstone investors to finance a portion of the purchase price of the possible offer for RSA Insurance Group PLC ("RSA"):

Further to the announcement on November 5, 2020 relating to the possible offer for RSA by Intact Financial Corporation (TSX: IFC) ("Intact" or the "Company") and Tryg A/S ("Tryg") (together the "Consortium"), Intact announced today that it has entered into subscription agreements with subsidiaries of each of Caisse de dépôt et placement du Québec ("CDPQ"), Canada Pension Plan Investment Board ("CPP Investments") and Ontario Teachers' Pension Plan Board ("Ontario Teachers'") for the aggregate issuance of 23.8 million subscription receipts at a price of $134.50 per subscription receipt for gross proceeds of $3.2 billion. CDPQ, CPP Investments, and Ontario Teachers' are committing $1.5 billion, $1.2 billion, and $0.5 billion, respectively. Completion of the offering is conditional upon the Consortium announcing a firm offer for RSA. Additional information on the proposed transaction is available at Intact's website at https://www.intactfc.com/English/investors/.

Each subscription receipt will entitle the holder to receive one common share of Intact as well as a commitment fee upon closing of the acquisition of RSA. The completion of the offering is subject to approval of the Toronto Stock Exchange and other customary closing conditions.

The subscription receipts and the common shares of Intact have not been, and will not be, registered under the U.S. Securities Act, or the securities laws of any state of the United States and may not be offered, sold or delivered, directly or indirectly, within the United States, except in certain transactions exempt from, or not subject to, the registration requirements of the U.S. Securities Act and applicable state securities laws. This press release does not constitute an offer to sell or a solicitation of an offer to buy any of these subscription receipts within the United States.

About Intact

Intact Financial Corporation is the largest provider of property and casualty (P&C) insurance in Canada and a leading provider of specialty insurance in North America, with over $11 billion in total annual premiums. The Company has approximately 16,000 employees who serve more than five million personal, business and public sector clients through offices in Canada and the U.S.

In Canada, Intact distributes insurance under the Intact Insurance brand through a wide network of brokers, including its wholly-owned subsidiary BrokerLink, and directly to consumers through belairdirect. Frank Cowan Company, a leading MGA, distributes public entity insurance programs including risk and claims management services in Canada.

In the U.S., Intact Insurance Specialty Solutions provides a range of specialty insurance products and services through independent agencies, regional and national brokers, wholesalers and managing general agencies. Products are underwritten by the insurance company subsidiaries of Intact Insurance Group USA, LLC.

About Caisse de dépôt et placement du Québec

Caisse de dépôt et placement du Québec (CDPQ) is a long-term institutional investor that manages funds primarily for public and para-public pension and insurance plans. As at June 30, 2020, it held CA$333.0 billion in net assets. As one of Canada's leading institutional fund managers, CDPQ invests globally in major financial markets, private equity, infrastructure, real estate and private debt. For more information, visit www.cdpq.com, follow us on Twitter @LaCDPQ or consult our Facebook or LinkedIn pages.

About Canada Pension Plan Investment Board

Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that invests around the world in the best interests of the more than 20 million contributors and beneficiaries of the Canada Pension Plan. In order to build diversified portfolios of assets, investments in public equities, private equities, real estate, infrastructure and fixed income are made by CPP Investments. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm's length from governments. At June 30, 2020, the Fund totalled C$434.4 billion. For more information, please visit www.cppinvestments.com or follow us on LinkedInFacebook or Twitter.

About Ontario Teachers' Pension Plan

The Ontario Teachers' Pension Plan Board (Ontario Teachers') is the administrator of Canada's largest single-profession pension plan, with $204.7 billion in net assets (all figures at June 30, 2020 unless noted). It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an annual total-fund net return of 9.5% since the plan's founding in 1990. Ontario Teachers' is an independent organization headquartered in Toronto. Its Asia-Pacific regional offices are in Hong Kong and Singapore, and its Europe, Middle East & Africa region office is in London. The defined-benefit plan, which is fully funded as at January 1, 2020, invests and administers the pensions of the province of Ontario's 329,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.

I will leave it up to you to read the full press release here as it also goes over forward looking statements and a long list of disclaimers, all standard stuff when entering a deal of this size.

CDPQ, CPP Investments and Ontario Teachers' are writing big tickets, committing $1.5 billion, $1.2 billion and $500 million, respectively to help Intact finance this acquisition (conditional offer).

CDPQ is committing the largest amount probably because Intact's head office is in Montreal (I believe) but the company has operations across Canada. You can read about it here, see its history here and its senior management team here.

Anyway, all three pensions are committing sizable amounts to help finance this conditional offer because they believe in the company, its senior managers and their ability to execute on its added value plan once this deal is completed.

This is Relationship Investing at its best where three top Canadian pensions are helping a large Canadian insurance company which is publicly listed (TSX: IFC) finance an acquisition of a UK insurer to grow its business there and all over the world.

Keep in mind, Relationship Investing is part of Canadian pensions' active equity strategy, it allows them to do bigger deals with publicly listed companies, often in the form of a subscription agreement where they can commit a big amount in exchange for fixed shares at an agreed upon price.

Basically, people working at Relationship Investing or "High Conviction" Equity teams at pensions invest across the equity asset class and along the liquidity range of pre-IPO, PIPEs and high conviction public companies.

At OTPP, for example, Russell Hammond is the Head of Global High Conviction and he leads a solid team dispersed across the globe. He reports to Karen Frank, Senior Managing Director and Global Head of Equities who is based in London.

At CPP Investments, Bill MacKenzie is the Managing Director and Head of Active Fundamental Equities. He heads the team responsible for delivering alpha through active security selection of public equity investments driven by bottom-up fundamental research. His past responsibilities include managing the team that focuses on global public equity investments in the Industrial, Energy and Materials sectors.

[Bill looks very familiar, I'm pretty sure he was in a few of my Economics courses at McGill in the early 90s.]

At CDPQ, I'm pretty sure all Active Equities strategies fall under Helen Beck's group. She is an EVP and Head of Equity Markets. One very sharp lady who runs a great team there.

Anyway, I did some reading on the RSA Group, the UK insurance company Intact is looking to acquire and here is what I learned: 

RSA is one of the world’s longest standing general insurers, providing peace of mind to individuals and families, and protecting small businesses and large corporations from uncertainty for more than 305 years

More about What we do

As the world has evolved and changed, so have the needs of our customers. As new risks and opportunities emerge, we constantly innovate and improve to serve our customers well. 

At RSA we provide award-winning personal, commercial and specialty insurance products and services direct-to-customers, via brokers and affinity partners.

It has operations all over the world, including in Canada and the United States. If you read more about this insurance company, you see there are excellent synergies with Intact Financial and it also appears to be the right cultural fit too. 

Interestingly, Intact Financial's shares got hit recently after they announced their intentions to acquire RSA but they are up nicely over the last five years and if this acquisition passes all the regulatory hurdles, I expect their share price will continue doing well over the long run: 


It's also worth noting that yesterday I discussed PSP Investments' first allocation into insurance-linked securities (ILS) and today I'm discussing a club deal involving three major Canadian pensions investing to help a large Canadian insurer acquire a UK insurer.

The insurance industry is a bit of a put selling strategy, you collect premiums and every once in a while you get hit and pay out claims.

The fact that large Canadian pensions are focusing their attention on insurance isn't an accident. With rates at ultra-low levels, they need to move away from bonds and collect yield elsewhere and putting more in real estate seems like a risky proposition in a post-pandemic world.

Unfortunately, deals of this magnitude don't come often but when they do, I'm pretty sure OTPP, CDPQ, CPP Investments and others will stand ready to pounce.

In another deal yesterday, OTPP announced it was part of a US $1.25 billion capital raising for Equis Development:

Equis Development Pte Ltd (“EDL”) today executed binding documentation with a wholly owned subsidiary of the Abu Dhabi Investment Authority (“ADIA”), Ontario Teachers’ Pension Plan Board (“Ontario Teachers’”) and the Equis management team to invest US$1.25 billion in EDL.

EDL is focused on developing, constructing and operating primary and hybrid renewable energy and biomass generation, power grid distribution and transmission and waste infrastructure assets in Australia, Japan and South Korea. EDL is currently developing or constructing 40 assets across its target markets.

EDL will finance and be responsible for every stage of an asset’s lifecycle from origination, procurement, construction, engineering and development through to operations and maintenance, asset management and performance optimization.

In 2019, the Equis Group ceased raising and investing private equity funds and consolidated 100% of its ongoing investment initiatives and management team within a single Singapore corporate holding company, EDL. This corporate structure is ideally suited to enabling EDL to pursue and secure complex development stage projects.

Khadem AlRemeithi, Executive Director of the Real Estate & Infrastructure Department at ADIA, said: “We believe there is a significant opportunity to support the growth of renewable energy infrastructure in Asia Pacific. Equis has a strong management team with extensive development and operational experience and is well positioned to continue to build its reputation as one of the region’s leading renewable energy businesses.”

Ben Chan, Regional Managing Director, Asia-Pacific at Ontario Teachers' stated, “We are excited to make this significant investment in the world-class team at EDL. The company fits with our greenfield and renewables strategy to focus on development stage opportunities through high-quality platforms. We believe this investment will help us build scale in Asia and grow our exposure to renewables.”

EDL management has successfully implemented similar strategies in the past. They were responsible for creating Equis Energy, a US$5 billion renewable energy platform, and recently announced the divestment of two Japanese biomass generation assets for US$1 billion.

EDL expects to maintain its leading position within the Asian renewable energy and biomass power generation markets and having already entered the waste infrastructure market, is forecasting similar growth. Recently announced investments into the Korean waste and solar markets and Japanese biomass markets are all being undertaken by EDL.

Lance Comes, EDL Managing Director stated, “EDL plans to commit over US$2 billion into renewable energy and waste infrastructure assets across Australia, Japan and South Korea over the next two years and is rapidly expanding its management team of over 60 engineering, investment and development professionals to ensure its success.”

About Equis Development Pte Ltd (EDL)
EDL is Asia-Pacific’s leading renewable energy and waste infrastructure developer and operator with a successful track record of having developed over 200 renewable energy and waste infrastructure projects across the region. EDL has offices in Australia, Korea, Japan and Singapore with a focus on the developed markets within the Asia-Pacific region.

About the Abu Dhabi Investment Authority (ADIA)
Since 1976, the Abu Dhabi Investment Authority (ADIA) has been prudently investing funds on behalf of the Government of Abu Dhabi, with a focus on long-term value creation. ADIA manages a global investment portfolio that is diversified across more than two-dozen asset classes and sub-categories, including quoted equities, fixed income, real estate, private equity, alternatives and infrastructure. For more information, please visit www.adia.ae

About Ontario Teachers’
The Ontario Teachers' Pension Plan Board (Ontario Teachers') is the administrator of Canada's largest single-profession pension plan, with C$204.7 billion in net assets (all figures at June 30, 2020 unless noted). It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an annual total-fund net return of 9.5% since the plan's founding in 1990. Ontario Teachers' is an independent organization headquartered in Toronto. Its Asia-Pacific regional offices are in Hong Kong and Singapore, and its Europe, Middle East & Africa region office is in London. The defined-benefit plan, which is fully funded as of January 1, 2020, invests and administers the pensions of the province of Ontario's 329,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.

ADIA's Khadem AlRemeithi and OTPP's Ben Chang explain why they have full confidence in the "world class team" at EDL and why this sizable capital raising makes sense. Learn more about Equis here.

The key passage in the press release above is this:

EDL management has successfully implemented similar strategies in the past. They were responsible for creating Equis Energy, a US$5 billion renewable energy platform, and recently announced the divestment of two Japanese biomass generation assets for US$1 billion.

EDL expects to maintain its leading position within the Asian renewable energy and biomass power generation markets and having already entered the waste infrastructure market, is forecasting similar growth. Recently announced investments into the Korean waste and solar markets and Japanese biomass markets are all being undertaken by EDL.

If you're going to invest in a renewable energy platform in Asia, choose your partner well and this is exactly what ADIA and OTPP did by partnering up with EDL.

Below, a history of the RSA Group, one of the world’s longest standing general insurers providing personal and commercial general insurance services worldwide.

Also, back in February, Stephen Hester, RSA Group chief executive, talked through the headlines of the company's 2019 full year results. 

I do hope this deal goes through, strengthening both RSA and Intact Financial and adding value to shareholders. 

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