OMERS Names New Head of Infrastructure, Exits European Venture Capital
Ontario Municipal Employees Retirement System has hired Michael Hill to be its global head of infrastructure, poaching the New York-based executive from Canada Pension Plan Investment Board and putting him in charge of a $34-billion portfolio.
Mr. Hill will join OMERS in September, the public pension fund announced Wednesday, and report to Ralph Berg, who took over as the chief investment officer in April. Around that time, previous infrastructure head Annesley Wallace left OMERS and took a position at energy infrastructure company TC Energy Corp.
Mr. Hill was most recently the head of CPPIB’s New York office and led its sustainable energies business in the Americas. He also spent 25 years in investment banking at Japanese dealer Nomura Securities, German lender Deutsche Bank AG and U.S.-based Morgan Stanley.
“Michael has an impressive track-record, extensive transaction background and significant experience in business strategy and sustainable energy,” Mr. Berg said in a news release.
The infrastructure business Mr. Hill is taking over has broadly performed well for OMERS, returning 12.5 per cent on its investments in 2022 and an average of 10.2 per cent over the past five years. Last year, OMERS made acquisitions in transportation, digital infrastructure and renewable energy sectors, and sold off assets such as its interest in the Scotia Gas Networks distribution utility in Britain.
The infrastructure portfolio owns 30 assets in North America, Europe and the Asia-Pacific region, and has more than 90 investment professionals.
OMERS has made several notable executive changes this year. Mr. Berg took over as CIO after his predecessor Satish Rai retired, in the same month that OMERS hired Daniel Fournier as the head of its real-estate arm, Oxford Properties Group Inc. At the same time that Ms. Wallace left the infrastructure group, the head of OMERS growth equity, Mark Shulgan, was also pushed out.
Last week, OMERS put out a press release on Michael Hill's appointment to lead OMERS Infrastructure:
OMERS today announced that Michael Hill has been appointed Executive Vice President & Global Head of Infrastructure at OMERS. Michael, who joins OMERS on 5 September and will be based in New York, and report to Chief Investment Officer Ralph Berg.This is big news as the C$ 34 billion infrastructure portfolio at OMERS makes up 27% of total assets and it is a great portfolio.
Michael is a highly respected investment professional and leader with more than 30 years of broadly diversified, global investment experience. At OMERS he will have accountability and oversight for our global infrastructure investment and asset management programs. OMERS Infrastructure manages approximately C$34 billion in assets and had a 5-year average net return of 10.2% to the end of 2022.
Ralph Berg, Chief Investment Officer, OMERS, said: “Michael has an impressive track-record, extensive transaction background and significant experience in business strategy and sustainable energy. Infrastructure plays a core role in our global investment strategy, and I look forward to working with Michael and the entire team as we continue to focus on the pension promise to our members.”
Michael Hill, incoming Executive Vice President & Global Head of Infrastructure, OMERS, said: “OMERS Infrastructure has an excellent reputation and is well known for being purpose-driven, delivering strong results for members and partners, and for leading innovation in the way it invests and collaborates with its portfolio companies on transformations. It is a real privilege to join OMERS and I look forward to working with its world-class team of investment professionals to continue to grow its infrastructure platform.”
Michael joins OMERS from another Canada pension plan where most recently he was the Americas Head of Sustainable Energies, focused on direct private equity investments across the energy sector. He was also the head of the firm’s New York office. Previously, Michael spent over 25 years in investment banking, working across asset classes, in various roles at Nomura Securities, Deutsche Bank and Morgan Stanley. He has worked globally, and been based out of New York, London and Toronto.
OMERS Infrastructure has more than 90 investment professionals around the world and has a portfolio of 30 assets in North America, Europe and Asia-Pacific.
They needed to find someone who is highly qualified and experienced and they poached Michael Hill away from CPP Investments.
The fact that other large Canadian pension funds keep poaching talent away from CPP Investments tells you how much talent there is there.
Apart from Michael Hill, Scott Lawrence was Managing Director Head of Infrastructure at CPP Investments for 19 years before he recently departed that organization.
Mr. Hill was in charge of the sustainable energies group in Americas reporting to Bruce Hogg and he had an important position there.
But being in charge of one of the biggest and most important infrastructure portfolios in the institutional world enticed him to come over to OMERS.
He also undoubtedly knows OMERS new CIO Ralph Berg well and that too played a role in his appointment.
Ralph Berg once led OMERS Infrastructure and he knows very well what needs to get done there.
I will just add that Michael Hill worked in the Sustainable Energies team at CPP Investments and was directly responsible for big files there. This too played a factor in his appointment as energy transition is a huge theme at all of Canada's large pension investment managers.
He will also need to navigate the Thames Water debacle and his experience there will be critical.
Lastly, Mr. Hill is perfectly suited to take care of OMERS Infrastructure's institutional clients as they manage third party money.
Decision to exit European venture capital
In related news, Mark Bergen and Paula Sambo of Bloomberg report Canada’s OMERS pulls its venture capital arm from Europe:
OMERS Ventures the venture capital arm of the Canadian pension plan, is pulling out of Europe, marking a prominent global departure from the continent as EU technology investing dwindles.
The venture unit had set up a $332 million fund in 2019 to focus on European startups. A spokesperson for the Ontario Municipal Employees Retirement System confirmed the plans to exit the region, noting that its team had decided to focus on North America.
“Decisions to say goodbye to valued colleagues and friends are difficult, but we prioritize all our investment decisions to deliver on our pension promise, and doing what we believe to be in the best interest of our plan members,” the spokesperson wrote in an email.
The pension plan said its commitment to early-stage venture investing “remains strong” and it has invested C$2.5 billion ($1.86 billion) into young companies.
Launched in 2011, Omers Ventures has backed several notable Canadian tech companies, including Shopify Inc. and Hootsuite Inc. Bloomberg News reported in 2019 that the fund had invested €76 million ($83 million) into European companies. Omers had hired European investors from Balderton Capital and Uber Technologies Inc.
In 2019, European tech investing was soaring, thanks in part to an influx of funds from the US, Canada and Asia. It has since slowed dramatically. Venture financing into startups during the second quarter fell about 60% in Europe to €12.3 billion from a year earlier, according to data from PitchBook.
No doubt about it, Europe’s venture capital firms are on pace for their most meager year of funding since 2015, a worrying sign for technology startups already facing a sharp slowdown in deals and exit opportunities:
Venture funds based in Europe raised €3.4 billion ($3.72 billion) from limited partners during the first quarter of 2023, down from €7.4 billion in same period of 2022, according to new data from research firm PitchBook. Since 2019, these funds had raised investing stockpiles of more than €20 billion annually. But a weaker stock market and rising interest rates caused large institutional investors and pension funds, the largest backers of venture firms, to pull back.
I can't say I'm surprised by the decision to exit European VC funds, and even though OMERS Ventures wants to focus on North American start-ups, it will not be any easier there too.
A cold winter is coming to VC La La Land where for years money was cheap, valuations didn't matter and exits were a breeze as the Nasdaq kept soaring higher and higher.
But as higher rates persist for longer, it will rock the foundations of venture capital as we have known it and there will be a brutal shakeout in the industry.
It's coming, I guarantee you, just like I guarantee a recession and bear market unlike anything we have seen in years is coming, so you will see more pension funds taking risk off at the riskiest part of the capital structure at this time as they hunker down.
They will not completely exit venture capital, they need to take some risk, but they will focus their attention in North America and most of them will work with the best VC funds to deliver results.
Venture capital is cyclical and it's brutal when winter arrives.
I've seen it firsthand at the BDC back in 2008 and I will see it again.
When I was at PSP in 2005, I got Gordon Fyfe, the former CEO, and Derek Murphy, the former head of Private Equity, a brief meeting with Doug Leone, partner at Sequoia Capital.
Back then their $500 million fund was over-subscribed by $4.5 billion and the partners were fighting over whether Harvard or Yale will get an allocation.
"Tell your pension guys not to invest in venture capital, they will lose their shirts," Leone warned me over the phone, but he finally caved in and met with Gordon and Derek (more of a brief courtesy meeting).
Of course, since then, Sequoia Capital has been more than happy to accept Canadian and other pension money and it even made the news last year when the FTX disaster exposed its weak due diligence.
How times have changed, tough talking Doug Leone used to warn about a nuclear winter coming to venture capital and he changed his tune when rates fell to ultra low levels and all that tidal wave of money came their way.
Anyway, venture capital isn't easy but it is necessary and pension funds need to invest there to increase their chance of finding the next big thing wherever that will be.
But they only put a small amount of total assets there, typically 1% or less as part of the private equity portfolio.
In short, I'm not worried about OMERS Ventures and its decision to exit Europe makes perfect sense.
Below, Thames Water says it has secured a commitment for an additional £750m investment by shareholders, as the company races to avoid the possibility of being placed in temporary public ownership. However, Thames admitted the new equity was dependent on investors agreeing on a new business plan.
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