More on IMCO and Maple Eight's Dirty Little Governance Secrets

Last week, I discussed IMCO's private equity deployment and big governance problem, noting this at the end:

Now, IMCO and Craig Ferguson. 

He's doing his job and a good job and he's right:

"Our program is designed to continue to grow with a focus on investing consistently across vintage years' of private equity while seeking attractive risk-adjusted returns, investing alongside our best-in-class partners with deep sector expertise."

You need to diversify by sector, geography, vintage year and co-invest alongside world-class partners to reduce fee drag in good and especially bad times.

Every major pension fund in Canada has roughly the same approach (OMERS is a bit more unique doing more direct deals on its own in recession proof industries).

They invest in "best-in-class" PE funds all over the world and co-invest to reduce fee drag.

Craig Ferguson even gave an exclusive interview to Buyouts on how rocky fundraising may help normalize PE model. 

A note to IMCO's communications, when you agree to these exclusive interviews, make sure you provide a link on your website where your clients and the public can read it for free (like OTPP does).

It's insane how these industry publications get away from charging ridiculously high subscription fees for content that should be free to pension fund clients and the public.

What else? A few months ago, I learned that the investment in Peloton Capital Management was not Craig Ferguson's decision but came straight from the top.

I covered Peloton's differentiated approach back in 2019 when I was working in the Advisory group at KPMG (don't get me started on that short stint, I knew Compliance would kill that gig) and think highly of the founders Steve Faraone, Mike Murray (both formerly at OTPP) and Stephen Smith, the billionaire businessman who backed their seed fund up (my boss at KPMG, a nice guy, "suggested" I cover PCM on my blog, so I did and that comment zipped through Compliance, shocker!).

It's a solid fund, they're doing well and have recently announced the first close of PCM’s second fund (PCM Fund II) with C$425M in aggregate commitments. 

But there's no way you can tell me that IMCO didn't have better options to invest in than PCM!

It helps when Stephen Smith can make one phone call to Ed Clark (Bert Clark's father) or a former OTPP CEO and get an allocation from IMCO.

"Who cares Leo, good for them, they got the allocation and have to perform like other PE funds or else they're toast!"

Absolutely true, but I am a stickler for unflinching, comprehensive transparency and top governance, and if I went to IMCO's Chair Brian Gibson and Bob Bertram (two highly regarded veterans of the pension industry) and told them exactly what I'm saying here, namely, it wasn't Craig Ferguson's decision to invest in Peloton Capital Management, they'd have "no comment".

But I would ask IMCO's Board to look into these allegations and take them extremely seriously.

Again, this may turn out to be a great long-term investment and a great long-term relationship, but that's not the point. It pisses me off when billionaires use their clout to get favors from public pension funds.

I don't know Stephen Smith from a hole in the wall, have no interest in meeting him, but if he was in front of me right now, I'd tell him straight out: "You might be a highly regarded and successful billionaire but don't ever use your clout to gain favors from public pension funds."

And let me be crystal clear, it wasn't Craig Ferguson who shared this with me, it was someone else who has nothing to do with IMCO.

Something about that PCM allocation doesn't smell right to me and the truth should come out (those guys never contributed a dime to my blog but that has nothing to do with the truth).

As George Carlin once stated: "It's a Big Club, you and I aren't part of the Big Club."

I also added an important update to that comment stating the following:

I completely forgot to mention that IMCO's former head of Infrastructure, Tim Formuziewich, who joined the organization in 2019 to lead IMCO’s infrastructure investments and was featured in this IPE Real Assets article on grand designs for battery storage, left last year to join Squared Capital as a Managing Director.

Squared Capital is a leading global infrastructure investment manager which closed its ISQ Global Infrastructure Fund III at the $15 billion legal cap last April, exceeding an initial target of $12 billion.

The problem? Tim Formuziewich directed hundreds of millions in Squared Capital when he was in charge of Infrastructure at IMCO and then crossed over to become a Managing Director there.

Tim is an excellent infrastructure investor but that should have never been allowed, part of governance 101 and reminds me of my time at PSP when André Collin joined Lone Star Funds after investing billions in that fund (just literally joined after collecting his $2 million bonus at PSP and nobody said a word!).

Let me be blunt: IMCO has a big governance problem. Their governance has more holes than Swiss cheese and it stinks, really stinks!

I reached out yesterday to IMCO's Chair Brian Gibson privately on LinkedIn to discuss these matters and asked him to call me. So far, CRICKETS!! (Brian did reach out Friday morning and we exchanged messages on LinkedIn, which I will keep private).

Now, Brian Gibson did reach out to me and was nice enough to give me his personal cell for people who contacted me to contact him to discuss. I did tell them about this and they told me they will decline to contact him (no kidding).

This week, I got some more people reaching out, telling me IMCO's governance is a lot worse than I think.

One person called me and said this: 

"Bert Clark's father, Ed Clark, former CEO of TD Bank and strong Liberal supporter, was the most senior financial advisor to former Ontario Premier Kathleen Wynne, he helped Bert get the job of President and CEO at Infrastructure Ontario and then the top job at IMCO. They didn't even have a competition for the top job at IMCO, it was given to Bert who had no experience working at a pension fund."

I (somewhat curtly) replied: "And? The whole world knows this! Tell me something I don't know!"

They went on:

"Well, what you don't know is that Ed Clark not only handed his son the top job at IMCO, he ensured that the governance was set up in a way so that Bert Clark can never be touched. It's a staggered Board so Premier Doug Ford cannot get rid of Bert Clark without removing all Liberal appointed Board members one by one and that can take another 6 years! Also, one board member, Vincenza Sera, was handpicked by Ed Clark to Chair IMCO's Nominating & Governance Committee. She has been there from the start and in my experience runs interference for Bert and tries to ensure that anyone appointed to the Board is supportive of him. The same goes for Eric Tripp, he too sits on IMCO's Nominating & Governance Committee and makes sure Board members are supportive of Bert."

They continued:

"At IMCO, the entire senior management team, except for the CEO, has been replaced over the past four years. And the CEO has attracted only one new client - a key part of his mandate. How does he survive if none of the original people he hired have stayed and he hasn’t attracted new clients? The answer is he’s protected by Vincenza Sera, Head of Governance and Eric Tripp. They both block and tackle for him."

They added:

"They both are puppets in my view but difficult to replace given they are appointed by other organizations and board member’s terms are staggered. You should try to speak to Chair Brian Gibson or the former CIO, CRO, COO or head of private markets—all gone. Bet Gibson’s frustrated by now. Entire senior management team has turned over in last few years; and the organization has failed to aggregate meaningful assets (it’s raison d’etre). It’s a bust. But CEO with no asset management experience keeps his job and pulls down an excessive pay package. And the Head of Governance and Nominating committee does nothing but defend him.

Ms Sera is a director and Chair of the Nominating and Governance Committee of Investment Management Corporation of Ontario. She served on the Board of the Ontario Pension Board for 13 years, including nine as Chair of the Board. 9 years as chair of OPB…clearly a poster child for good governance."

More concerning, they said: "There is quite a bit of tension on that Board and it's always between Ms. Siera and Mr. Tripp and Brian Gibson and others."

Well, that caught my attention, so I looked up who Vincenza Siera and Eric Tripp are and sure enough, they are both key board members of IMCO's Nominating & Governance Committee and Ms. Siera has been there from the beginning of IMCO in 2017:

Now, I don't know if this person has a personal beef with these two IMCO board members but they do raise a good governance point, namely: How are IMCO Board members appointed? By whom and for how long?

I personally think no board member anywhere should be allowed more than two consecutive three or four year terms. I want to see an independent panel appointing them not the Premier's office.

I have (more like had) tremendous respect for Ed Clark, he was a great CEO, he was the only big bank CEO with the brains and fortitude to stay away from asset-backed commercial paper (ABCP). He didn't buy or sell this garbage when all this peers were making money hand over fist doing so (actually TD had no exposure to ABCP but it did sell it).

But if these allegations are true, Ed Clark did a great disservice to his son and I will tell him so in his face if I ever meet the man.

Bert Clark isn't a bad guy, he's actually nice when you talk to him, he's pretty bright, understands the macro and foundations of pension investing, but the truth is he got this job because of his father and he has made a lot of "rookie" mistakes and has managed to survive somehow.

I do not wish Bert any harm in writing this, it's kind of difficult being "the son of Ed Clark" because people always look at you like "what the hell have you done by yourself?" and "you'll never be as successful as your father." 

I'm sure Justin Trudeau feels the same way (for good reason).

But Bert is able to forge his own path and he has to learn to stop micromanaging people at IMCO and respect governance above all.

That means when Stephen Smith tells Jim Leech to call you and tell you to look at Peloton Capital Management, you do NOT go to your private equity guy and say "have a look at these guys, I heard they're really good." (a source I trust told me this is exactly what happened)

That is just plain wrong.

And it's not just Bert Clark and IMCO, there are real governance issues at all of Canada's large pension funds that infuriate me.

"Canadian model, we are the poster children of good governance." Really?

The dirty little secret at Canada's large pension funds is there are quite a few governance lapses and they gloss over them to protect their brand and reputations, but we all know what I'm talking about.

From Mark Wiseman going to BlackRock, to Andre Bourbonnais joining him there, to Andre Collin joining Lone Star, to Mark Jenkins and Macky Tall joining Carlyle, to Steve Faraone and Mike Murray leaving OTPP to form Peloton with Stephen Smith as their anchor investor, to PSP/BCI helping to seed Searchlight Capital and Erol Uzumeri, another OTPP alumni, to Henri-Paul Rousseau, Christian Pestre and Luc Verville landing at Power Corp, AIMCo, and Fondaction after the 2008 ABCP blow-up, and on and on and on.

There is a lot of nonsense going on at Canada's large pension fund that goes undetected.

[Note: In the US, a pension investment manager can’t work at a fund they invest with for a minimum period of three years after they leave that pension fund. Governance 101!!!] 

Lastly, and this is important so pay attention, a friend of mine who is the CFO of a Crown corporation told me: "There is no arm's length between governments, all governments, and Crown corps. This is a myth, I can assure you of this to the point where they should no longer be called Crown corps."

He added: "And if large pension funds start exhibiting egregious behaviors, it's only a matter of time before governments get in there and close that compensation party for good, and that will effectively mean the death of the much touted Canada model."

I couldn't agree more, I too worry about the end of the Canada model as we know it -- and this is something we all need to make sure never happens!