CPPIB Revamps its PE Program?

Kirk Falconer of PE Hub Network reports, CPPIB revamps $80 bln PE program to extend global deal reach:
Canada Pension Plan Investment Board, the world’s biggest institutional investor in private equity, is reorganizing its program to access a broader set of PE opportunities in a challenging market environment.

The initiative was set in motion nine months ago, when Senior Managing Director Shane Feeney was appointed global head of PE.

Feeney’s job, a new one at the $368 billion pension fund, marked the end of two investment departments and created an amped-up PE platform that unites the once divided areas of direct investing, funds, secondaries and Asian investing.

The new platform amasses assets worth $80.3 billion at the end of September. It also brings together more than 100 investment pros located worldwide.

Feeney told Buyouts the goal of the reorganization is to further enhance CPPIB’s ability to make long-term investments across a “breadth of deals and structures in the global market.”

The result, he said, will be especially significant “on the origination side.”

“We need to see as many attractive opportunities as we can, as much deal flow coming through the funnel as possible, to scale assets with the best risk-adjusted returns across products and geographies,” Feeney said.

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Last week, I discussed the threats facing private equity which included a guest comment from Sebastien Canderle, the author of The Good, the Bad and the Ugly of Private Equity.

I also discussed why performance persistence in private equity is diminishing and how the returns themselves are not what they used to be. Moreover, I went over new research from a leading Massachusetts Institute of Technology academic shows that co-investment vehicles may not be a panacea for these problems.

Today, everyone's attention is on public markets and what is turning out to be the worst December on record for stocks since the Great Depression.

The S&P500 ETF (SPY) has just experienced the dreaded death cross on its daily chart, when the 50-day moving average falls below the 200-day:

And the weekly 5-year chart isn't very bullish either:

More worrisome, credit markets are starting to seize up but so far, the high yield bond ETF (HYG) hasn't broken below key support levels:

Still, when you hear big banks are poised to suffer losses from buyout loans that they have on their books that they’d intended to sell but now can’t unless they take a loss, you start to worry:

All this gives you a background of the challenges facing private equity. Without good stock markets, the exit strategy for PE funds is effectively much harder (unless they sell to a strategic buyer and get good money) and without good credit markets, buyouts are in trouble.

These are the many challenges big investors like CPPIB are now faced with in private equity but they have a long investment horizon and should be looking at these dislocations as an opportunity to buy assets at much cheaper valuations.

Shane Feeney leads a very experienced team at CPPIB but he needed to reorganize private equity, focus on origination and deal flow to find the very best opportunities across the world, and to do so as efficiently as possible.

For a very large investor like CPPIB, it's all about scale and finding the very best opportunities all over the world, co-investing on large deals to lower overall fees and doing so with the best partners on all five continents.

Sounds easy but it's far from easy and it requires skill, patience and persistence.

The good years in private equity are over. Now comes the very tough years where operational excellence is critical in achieving success.

Lastly, let me congratulate Delaney Brown, CPPIB's head of PE funds, who was listed one of the 50 most influential people in European Private Equity by Financial News:

Below, Ken Mehlman, Kohlberg Kravis Roberts & Co. global head of public affairs and co-head of global impact, discusses the firm's approach to impact investing with Bloomberg's Jason Kelly on "Bloomberg Markets." Great discussion, listen to his insights.