OMERS to Stop Making Direct Private Equity Investments in Europe
The Ontario Municipal Employees Retirement System will stop making direct private equity investments in Europe as the pension fund overhauls its operations there, according to people familiar with the matter.
Omers plans to shift its exposure in the region by investing alongside partners and third-party managers, said the people, who asked not to be identified discussing confidential information.
Jonathan Mussellwhite, who led private equity in Europe since 2018, left Omers earlier this month, a spokesperson said in a statement Thursday. The pension fund said previously that Michael Graham, its global head of private equity, will retire in February. Omers will launch a global funds strategy within a new group called Private Capital.
The C$25.1 billion ($18.6 billion) private equity portfolio will be split, with Michael Block leading the global funds strategy, while Eric Haley continues to oversee the North American buyout program.
“This new strategy will complement, rather than compete with, our buyout strategy, ensuring a diversified investment approach,” the spokesperson said. “A direct-drive PE business remains core to our investment strategy.”
Omers had net assets totaling C$133.6 billion at the end of June. Last year, its venture capital arm pulled out of Europe after setting up a $332 million fund in 2019 to focus on startups there.
Private equity dealmaking in Europe remains subdued, with buyers and sellers struggling to agree on valuations, hobbling mergers and acquisitions activity.
Earlier this month, OMERS announced Michael Graham’s decision to retire from OMERS Private Equity in 2025:
TORONTO – OMERS Private Equity today announced that Michael Graham, Global Head of Private Equity, will retire from OMERS in early 2025, following a successful decades-long career with the pension plan.
“Michael’s leadership has shaped our private equity business and culture over the years,” said Ralph Berg, OMERS Chief Investment Officer. “Under his watch, OMERS Private Equity has transformed businesses within its portfolio, positioning them to positively influence their sectors and communities well beyond the reach of private equity. After his retirement, we will continue to benefit from Michael’s perspective and guidance as he will stay close to our private equity business as a Senior Advisor. I would like to recognize Michael’s dedication to delivering on the pension promise and thank him for his 20+ years of leadership.”
Michael began his career with OMERS in 2004 as a Vice President on the Private Equity team in Toronto and in 2009 he moved to New York City to open the OMERS office on Park Avenue, assuming roles of increasing responsibility until his appointment as Global Head of Private Equity in early 2020. Over the years he has worked with the team to grow our private equity business from $1.5B CAD to approximately $25B CAD in assets under management.
Moving forward, senior leadership responsibility of the private equity business will be divided at the strategy level and transition to Eric Haley and Michael Block. Eric Haley’s title will change to, Head of Private Equity, Buyout and he will lead the buyout strategy and teams. Michael Block will take on an expanded mandate, leading a new group which will be named Private Capital, and his title will now be Head of Private Capital. His portfolio includes oversight across our Ventures, Growth, Green Tech, Life Sciences, European and Asia-Pacific private equity, as well as the development and execution of the new global funds strategy.
Commenting on the appointments, Ralph Berg added, “Both Michael and Eric are proven leaders and investors, each with a strong track record. We have the deepest confidence in them and congratulate them on their new roles.”
About OMERS Private Equity
OMERS Private Equity manages investments globally on behalf of OMERS, one of Canada’s largest defined benefit pension plans, with C$128.6 billion in net assets as of December 31, 2023, including approximately C$25.1 billion in net private equity investment asset exposure. With teams in New York, London, Toronto and Singapore, OMERS Private Equity invests across Industrials, Healthcare, Business Services and Technology, deploying an evergreen capital base to partner with strong management teams and transform good companies into industry leaders around the globe.
On LinkedIn, OMERS CEO Blake Hutcheson posted this two weeks ago:
So Michael Graham is retiring from OMERS in early 2025.
Eric Haley will become Head of Private Equity, Buyout and he will lead the buyout strategy and teams.
Michael Block will take on an expanded mandate, leading a new group which will be named Private Capital, and his title will now be Head of Private Capital.
His portfolio includes oversight across OMERS Ventures, Growth, Green Tech, Life Sciences, European and Asia-Pacific private equity, as well as the development and execution of the new global funds strategy.
Very little details on this new fund strategy but I expect it to be similar to what other large Canadian pension funds are doing, investing in top funds (strategic partners) and co-investing on larger transactions to reduce fee drag.
Unbeknownst to me, Jonathan Mussellwhite, who led private equity in Europe since 2018, left OMERS earlier this month,
Jonathan was instrumental in several large deals but it sounds like direct private equity isn't working in Europe and they want to shift the strategy.
In his last interview to PE Hub back in July, Jonathan said the valuation outlook is cloudy.
Recall, in mid-August, I went over OMERS' mid-year results with CEO Blake Hutcheson and CSO/CFO Jonathan Simmons.
Jonathan (Simmons) told me things in private equity were challenging and they were waiting for rate cuts so transactions can pick up.
I think activity is about to pick up in Europe.
In fact, Jan-Henrik Förster of Bloomberg recently reported KKR is readying dealmakers to double the European assets again:
At the start of the pandemic, KKR & Co. decided to go on a massive spree that allowed the buyout behemoth to double its European private equity business in recent years. Now it’s looking to do it again.
The unit’s assets under management have doubled in the last five years and are now over $37 billion, according to Mattia Caprioli, who co-heads KKR’s business across Europe, the Middle East and Africa. The company is hoping an active pipeline of deals will help it pull off the same level of growth in the coming years.
“I think we can double it again,” Caprioli, who was an early employee at KKR Europe, said in an interview from the International Private Equity Market event in Paris this week alongside his co-head Tara Davies. “I know the tone is ‘Let’s look to 2025 as activity has not really picked up, IPO markets are still relatively shut globally.’ But in reality we have been much more active this year.”
KKR completed its first European investment almost 30 years ago and raised its first dedicated fund for the continent in 1999. It’s raised a total of six vehicles focused on the region, including an $8 billion fund it closed last year.
The executives’ bullishness is the latest sign that the private equity industry is determined to make a comeback after struggling with company exits due to differing price expectations of buyers and sellers. The reluctance to sell led to tensions between PE funds and their investors — known as limited partners — with the latter asking them to return more cash.
The fact that many PE funds weren’t able to return hoards of cash to their investors created a vicious cycle for the industry. It meant many limited partners had to stop allocating money to alternative asset managers, leaving buyout funds unable to raise fresh money for deals.
Many funds are now focused on improving a metric known as distributed to paid-in capital — the ratio of cash generated to what’s invested. That means fewer competitors are looking to deploy the industry’s vast trove of dry powder and has allowed KKR to swoop in and win a number of deals, Davies said.
“We have seen attractive opportunities over the last couple of years that would have been heavily bid had it not been for the market conditions,” she said.
KKR has been also focusing on expanding its investments in infrastructure, said Davies, who also co-heads the company’s investments in that area across Europe. That sector has been especially active as governments around the world have loaded up on debt since the great financial crisis, paving the way for buyout funds to take a more active role in the development of bridges, roads, data centers and telecommunications.
For instance, KKR in November agreed to buy Telecom Italia’s landline network — the company’s most valuable asset — in a move aimed at slashing the phone carrier’s liabilities. The €22 billion ($24.4 billion) sale, which regulators approved in May, was the first of its kind for European phone carriers.
And KKR in March said it would acquire renewable-energy producer Encavis AG in a deal that values the German company at about €2.8 billion.
“The nice thing about infrastructure is whether governments are sitting right or left actually infrastructure tends to be politically neutral because it creates jobs and GDP,” Davies said.
Now, I don't know if Michael Block, the new head of OMERS Private Capital, will be investing in KKR's European funds but it wouldn't surprise me if they did (they invest with them in Asia and US).
My point is it's very hard to compete with the KKRs of this world in private equity so you are better off having a few strategic partners and leaning on them to get co-investments on larger transactions.
That's the winning formula at pretty much all of Canada's Maple Eight.
Alright, let me end it there, wish Michael Graham all the best as he gets set to retire and wish Michael Block and Eric Haley all the best as they get set to take on new roles at OMERS Private Capital.
Below, Satish Rai, former CIO of OMERS discusses the implications of higher for longer with BNN (May, 2024). Excellent interview, listen carefully to his comments.
Also, Mattia Caprioli, Partner, Co-Head of European Private Equity at KKR, speaks in the Conference Room at IPEM Paris 2024 during the session "Having the confidence to forge ahead in the Private Markets (September, 2024)."
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