CDPQ, OTPP Finance New Insurance Platform
Constellation Insurance Holdings (“Constellation”), founded by Anurag Chandra, former CEO of Prosperity Life Insurance Group (“Prosperity”), announced today that it has partnered with Caisse de dépôt et placement du Québec (“CDPQ”) and Ontario Teachers’ Pension Plan (“Ontario Teachers’”) and raised US$500 million in initial capital from them as founding investors. CDPQ and Ontario Teachers’ are two of North America’s largest institutional investors and together manage over CA$500 billion in net assets as of June 30, 2019.Reinsurance News also discussed CDPQ and OTPP's $500 million investment in Anurag Chandra’s new insurance platform:
“Constellation plans to invest in stock and mutual insurers based in North America that are seeking growth capital, stronger ratings, scale efficiencies and equity incentives while maintaining their independent management structure, brand identity, operations and entrepreneurial culture,” said Anurag Chandra, Founder, Chairman & CEO of Constellation. “Constellation’s target market and value proposition are differentiated versus other insurance platforms that focus on either asset accumulation, legacy block reinsurance or have shorter term investment horizons, which incentivize substantial expense reductions and limit investments in organic new business growth.”
“We believe this new partnership, which allies a unique combination of expertise to a flexible investment horizon, will provide a source of competitive advantage for Constellation” said Stephane Etroy, Executive Vice-President and Head of Private Equity at CDPQ. “We look forward to working with insurers’ management teams to support their existing operations and to identify new avenues for growth.”
“We are delighted to partner alongside CDPQ with Anurag Chandra, who has a distinctive and successful track record in the insurance sector including acquisitions, demutualizations, turnarounds and rehabilitations. As CEO of Prosperity, he built an attractive, high growth insurance platform that generated exceptional investor returns and favorable outcomes for all key stakeholders,” said Jane Rowe, Executive Managing Director, Equities, at Ontario Teachers’. “We expect this partnership with Constellation and CDPQ to create significant value for our stakeholders.”
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 parapublic pension and insurance plans. As at June 30, 2019, it held CA$326.7 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 cdpq.com, follow us on Twitter @LaCDPQ or consult our Facebook or LinkedIn pages.
ABOUT ONTARIO TEACHERS’ PENSION PLAN
The Ontario Teachers' Pension Plan (Ontario Teachers') is Canada's largest single-profession pension plan, with $201.4 billion in net assets at June 30, 2019. 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 9.7% since the plan's founding in 1990 (all figures as at Dec. 31, 2018 unless noted). Ontario Teachers' is an independent organization headquartered in Toronto. Its Asia-Pacific region office is located in Hong Kong and in Europe, Middle East & Africa region office is in London. The defined-benefit plan, which is fully funded, invests and administers the pensions of the province of Ontario's 327,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.
Former Chief Executive of Prosperity Life, Anurag Chandra, has secured $500 million in funding from Caisse de dépôt et placement du Québec (CDPQ) and the Ontario Teachers’ Pension Plan (OTPP) to launch Constellation Insurance Holdings, a platform set to focus on P&C and life insurer acquisitions and demutualizations.So, the Caisse and Ontario Teachers' teamed up to finance Anurag Chandra’s new insurance platform, each committing $250 million.
Chandra, who will serve as CEO and Chairman of Constellation, says the new platform will invest in stock and mutual insurers based in North America that are seeking growth capital, stronger ratings, scale efficiencies and equity incentives while maintaining their independent management structure, brand identity, operations and entrepreneurial culture.
Chandra stepped away from Prosperity earlier this year after a ten year stint at the firm.
This new partnership will see him join forces with two of the largest investors in North America, with CDPQ and Ontario Teachers currently managing over CA$500 billion in net assets.
“Constellation’s target market and value proposition are differentiated versus other insurance platforms that focus on either asset accumulation, legacy block reinsurance or have shorter term investment horizons, which incentivize substantial expense reductions and limit investments in organic new business growth,” Chandra added.
Stephane Etroy, executive vice-president and head of private equity at CDPQ, said this new partnership will provide a source of competitive advantage for Constellation.
“We look forward to working with insurers’ management teams to support their existing operations and to identify new avenues for growth,” he added.
Jane Rowe, Executive Managing Director, Equities, at Ontario Teachers’, added, “We are delighted to partner alongside CDPQ with Anurag Chandra, who has a distinctive and successful track record in the insurance sector including acquisitions, demutualizations, turnarounds and rehabilitations.
“As CEO of Prosperity, he built an attractive, high growth insurance platform that generated exceptional investor returns and favourable outcomes for all key stakeholders.”
“We expect this partnership with Constellation and CDPQ to create significant value for our stakeholders.”
There's not much I can say on this deal except that the Caisse and Teachers' did their due diligence and saw an opportunity to team up with an experienced executive who has a great track record in the insurance industry.
Anurag Chandra resigned as CEO of Prosperity Life Insurance back in March after a successful five-year tenure leading the turnaround and strategic transformation of the company and stayed at the helm till the end of June.
It's worth noting the following about Prosperity Life Insurance:
Prosperity, through its member companies, Shenandoah Life Insurance Company, SBLI USA Life Insurance Company, Inc. and S.USA Life Insurance Company, Inc., is a leading provider of protection, supplemental and asset accumulation products distributed through banks, independent marketing organizations, managing general agencies, career and worksite channels.This shows you that Anurag Chandra was successful at Prosperity and left the company in excellent shape. He probably wanted to move on to do something more entrepreneurial and this new platform financed by two of Canada's largest pensions will allow him to leverage his deep experience and expertise in the insurance industry.
Meeting financial promises to our customers through financial strength and stability is paramount to everything we do and is evidenced by an A- (Excellent) A.M. Best financial strength rating. We proudly service more than 300,000 policies with over $15 billion of life insurance in force. Prosperity had $2.5 billion in assets as of 2017 YE and generated $34 million in after-tax statutory earnings in 2017.
†A.M. Best financial strength rating is current as of publication date. For latest rating, access www.ambest.com.
What else does the Caisse and OTPP get? If successful, this new platform will grow rapidly, and insurance companies like all financials tend to do well when rates are rising.
Go back to read my in-depth discussion with HOOPP's CEO Jim Keohane where he discussed a potential paradigm shift going on in terms of inflation.
Canada's pensions are keenly aware that inflation poses risks to their overall portfolio so they need a good mixture of public and private assets to hedge against future inflation risks.
The only negative thing I can say about this deal is it seems to me like Anurag Chandra is more of a turnaround specialist but there's no doubt he's an insurance expert who sees a target market and differentiated value proposition in this new insurance platform.
If you are going to team up with an industry veteran, make sure they have the track record and significant skin in the game.
I say this because earlier today, I read all about Softbank's $9.5 billion WeWork rescue package and apart from finding the terms despicable and an utter travesty, I agreed with someone on LinkedIn who rightly noted: "Moving from investor to operator is a big step. It requires some change to Softbank’s capabilities and operating model."
In other words, this is a disaster in the making and this is why Canada's large pensions don't typically operate any company, especially from the get-go, preferring to team up with an entrepreneur, often taking a significant minority stake in a company or joint venture they are financing, allowing the entrepreneur to maintain a majority stake (this ensures alignment of interests).
In other news related to CDPQ, I noted last week it agreed to buy IDFC PE’s road assets in India for Rs 2,400 crore.
Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ) has agreed to buy erstwhile IDFC Private Equity’s road portfolio Highway Concessions One (HC1) for Rs 2,400 crore, three people with direct knowledge of the development said.In late July, I discussed why CDPQ and CPPIB are vying for GIP's HC1 portfolio, and it looks like CDPQ edged out CPPIB on this deal (I'm certain CPPIB will edge out CDPQ and others on other big deals).
CDPQ pipped its Canadian peer, Canada Pension Plan Investment Board (CPPIB), and Indian sovereign wealth fund National Investment and Infrastructure Fund (NIIF), among others. HC1 comprises seven road assets covering 472 kilometres and having consolidated revenues of Rs 620 crore a year.
“The ask (valuation expectation) was around Rs 3,000 crore,” said a person involved in the process.
Global infrastructure fund manager Global Infrastructure Partners (GIP) had taken over private equity and other non-core businesses of IDFC in 2018 after the latter’s merger with First Capital.
The five toll roads and two annuity projects include Ulundurpet Expressways Pvt Ltd in Tamil Nadu, Nirmal BOT Ltd in Telangana, Dewas Bhopal Corridor Pvt Ltd in Madhya Pradesh, Bangalore Elevated Tollway Pvt Ltd in Karnataka, Godhra Expressways Pvt Ltd in Gujarat, Jodhpur Pali Expressway Pvt Ltd in Rajasthan and Shillong Expressway Pvt Ltd in Meghalaya.
A GIP spokesperson declined comment while a CDPQ spokesperson did not respond to emailed queries as of press time Tuesday.
This shows how there is a spirit of cooperation and some professional rivalry among Canada's large pensions as they are all vying for the same prized assets at times.
What else? CDPQ recently announced it will commit an additional $50 million to Québec seed funds that focus their efforts on fostering the emergence of new, innovative companies:
Over the last five years, CDPQ has significantly increased its involvement in Québec venture capital funds, including seed funds such as Anges Québec Capital, InnovExport and Real Ventures. This approach gives CDPQ access to a roster of promising companies that often gives rise to potential targets for direct investments, as seen with Hopper, Breather, Dialogue, AlayaCare and many others.While I understand the Caisse's dual mandate and why it is important to seed new Quebec based technology companies, I have mixed feelings about this "Quebec Inc." approach.
“Without a rich and dynamic startup ecosystem, there is a risk of considerably fewer quality investment opportunities in the subsequent growth and maturity phases, especially in disruptive niches. It is therefore key to invest at the very start, when companies are created, and then monitor their progress over time,” said Charles Émond, CDPQ’s Executive Vice-President and Head of Québec Investments and Global Strategic Planning.Seed funds are critical to providing not only financing, but ongoing support for new companies. To provide solid support to these funds’ teams, CDPQ has mandated Teralys, with its deep knowledge of the Québec venture capital ecosystem, to manage this envelope.
“This CDPQ initiative dedicated to local seed funds fits well with our desire to help expand entrepreneurship in Québec by providing support with high added value,” added Éric Legault, Managing Partner at Teralys Capital. “We are proud of CDPQ’s renewed confidence, which over the last ten years has allowed Teralys Capital to build the largest Canadian investor specialized in innovation right here in Montréal.”With the creation of this mandate, CDPQ aims to support the professionalization of new Québec seed managers and ensure they adopt best practices within their firms.
At the end of the day, the Caisse should have the same unique mandate as CPPIB, BCI, AIMCo, IMCO and other large Canadian pension funds, namely, maximizing returns without taking undue risks by investing in the very best opportunities across public and private markets all over the world.
No doubt, the Caisse's public and private market Quebec portfolio has been profitable but I am always asking myself the same question: "Are there better ooportunities to invest outside Quebec and what is in the very best long-term interest of Quebecers?".
Maybe it is wise and profitable to maintain the Caisse's dual mandate, I would just like to see a healthy debate on this front and not take it for granted.
Lastly, the company behind Montreal's REM electric commuter train is assuring the public that construction is on schedule and set to be up and running by the end of 2021:
It comes as a response to an article in La Presse which said the train could be delayed by almost two years because of work on the Mount Royal tunnel.When I saw this on CTV News, the first thought that went through my mind is the project manager at SNC-Lavalin should be fired as this is a classic ploy builders use (ie. willingly leaking an internal document to the press) to extract more money from the entity financing the project (the Caisse).
"The project is on schedule. Even in certain sections, it's ahead of schedule," said Harout Chitilian, executive director on CDPQ Infra, the subsidiary of Caisse de depot leading the project.
La Presse obtained an internal report produced for the builder about the Mount Royal tunnel. The report stated that the Montreal fire department will require the tunnel to have a firewall between the north and southbound tracks and a ventilation system to evacuate smoke in the case of a fire. It also suggests the tunnel may have to be widened for safety purposes.
"Everybody knows that this is a 100-year-old tunnel. Everybody knows that the tunnel needs to be reinforced, that we need new ventilation systems, new drainage systems, lighting telecommunications, plus exit shafts for users," said Chitilian. "If they're ever in the tunnel and God forbid something happens – so there's no compromise on our behalf, on the security of the citizens."
The report stated the builder, a consortium led by SNC-Lavalin, worries the tunnel fixes could add to the $6.3-billion price tag and lead to two years of delays. The Caisse de depot suggests the builder is trying to negotiate in public.
"In a normal construction project, you always have a situation -- here the builder is going to ask for more money, more time, and then you'll push back, and they'll push back again," said Chitilian.
Quebec Transport Minister Francois Bonnardel is reassuring the public the train will be delivered on time.
The Caisse de depot won't say yet what kind of penalty the builder would face if it does indeed face delays.
A few comments on this. The communications team at CDPQ Infra dropped the ball on this and wasn't on top of it which led to misinformation being spread to the public. Second, the Caisse needs to lawyer up big time and stick to its guns with SNC-Lavalin to make sure it delivers on time and on budget.
And third and most importantly, it's high time the Caisse acts like and owner, not investor in this REM project. I say this because as this greenfield project matures, I'm starting to see things that annoy me.
For example, in my area of Town of Mount-Royal, the traffic at the center of town where the work is being done is insane at peak hours because the Caisse and the city (TMR) didn't do a traffic management assessment to make sure they reduce congestion as much as possible.
No wonder TMR residents are demanding that more be done to dampen the impact this project will have on everyone who drives through, visits or does business in the area.
Sometimes it feels like a bunch of amateurs are running this project but admittedly, I am overly harsh as I loathe traffic and feel like Montreal as a city has descended into traffic hell for a lot of reasons (terrible planning, city regulators and inspectors not doing their job, need to revamp highway connections, kickbacks and bribes are probably the norm which ensures mediocrity and long-term traffic nightmares).
Anyway, I'd better stop there before I say something I regret.
Below, Ron Mock, outgoing president and CEO of Ontario Teachers' Pension Plan, discusses the global growth drivers for markets now and over the next decade. Click here if it doesn't load below.
Comments
Post a Comment