On IMCO's PE Deployment and Big Governance Problem

Today, IMCO announced its Private Equity team has prudently deployed capital in volatile market environments:

TORONTO (Feb 14, 2023) – The Investment Management Corporation of Ontario ("IMCO") closed 12 private equity direct and co-investments totaling over $500-million and committed more than $2-billion to strategic partners in 2022, in line with its long-term strategy of building its portfolio. IMCO's Private Equity team continued to deploy capital prudently across a diversified set of companies designed to strengthen the portfolio's ability to withstand market fluctuations. Capital commitments to strategic partners will be deployed over the coming years into attractive investment opportunities in multiple sectors and geographies.

"Despite a turbulent and uncertain market environment, IMCO's Private Equity team deployed capital in 2022 consistently and nimbly, strengthening our relationships with strategic partners through a combination of fund commitments and direct investments, and maintaining discipline and focus on our long-term strategy,"" said Craig Ferguson, Managing Director, Private Equity, IMCO. "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."

2022 Investment Highlights with Existing Strategic Partners

Select direct and co-investment transactions alongside strategic fund partners included:

IMCO also committed additional capital to existing fund partners: EagleTree Partners; Kohlberg & Company; Nordic Capital; Peloton Capital Management; TorQuest Partners; and Sumeru Equity Partners.

Added New Partners in 2022

IMCO Private Equity also established relationships with several new strategic partners:

  • Stone Point Capital;
  • Brookfield Capital Partners; and
  • Apax Global Impact, the first impact fund for IMCO’s Private Equity portfolio.

IMCO's Private Equity program is designed to achieve superior risk-adjusted returns for clients through a differentiated hybrid approach to investing, leveraging long term relationships with best-in-class strategic partners around the world, with a highly experienced team capable of making direct equity and co-investments. IMCO's Private Equity team is predominantly targeting investing in companies in North America and Europe. The portfolio seeks to invest across a range of sectors such as industrials, business services, consumer, technology/media/telecommunications, healthcare, and financial services.

Alright, let me get back to IMCO and poor Craig Ferguson, their Managing Director, Private Equity who's probably reading this comment and panicking right about now (as is Bert Clark).

Coming back to private markets, the only guy who has openly discussed the sea change in private equity is Jim Pittman of BCI (see big trouble brewing in Private Equity).

Jim Pittman was in town this summer and I grabbed a beer with him at the Keg downtown in Place Ville Marie where he had meetings and he totally gets it. 

The good times are OVER in Private Equity!!!


Yes, it will remain a very important asset class for all pension funds and institutional investors around the world, but that big fat gravy train PE party, kiss it goodbye in an era of higher rates for longer where credit is harder to come by.

And if the private debt bubble explodes, good luck, we are talking about a long winter in Private Equity and other private markets.

Only Jim Pittman has stated this publicly, saying in an era of higher rates and QT, his team has to readjust their expectations a lot lower.

That means all you novices who have never lived through or experienced a real bear market and a whopper of a recession/ depression, you are about to see one firsthand.

Jim Pittman, Gordon Fyfe, John Graham, Jo Taylor, Blake Hutcheson, Barb Zvan, Deb Orida, and other senior pension executives have seen their share of crises but even they will be surprised when this is all over. 

That much I can guarantee them.

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 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!

Importantly, 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 he violated basic governance principles.

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."

Alright, let me end it there. I'm all for IMCO's PE approach and their approach in general in all asset classes, partnering up with a few world-class partners (writing huge tickets) and co-investing alongside them to reduce fee drag.

Just want the governance standards to remain extremely high no matter what billionaire they know.

Lastly, before I forget, please take the time to read IMCO's newly released 5-year strategic plan "From Foundations to Our Future" here as it is excellent and deserves a separate comment on its own.

Below, Nada Eissa, former Deputy Assistant Treasury Secretary under George W Bush and associate professor at Georgetown University, and Jason Furman, Harvard Professor and former Chairman of The White House Council of Economic Advisers under President Obama, join 'Squawk Box' to discuss economic conditions impacting CPI, potential Fed response to the CPI numbers, and Fed and market outlooks aligning. 

Listen carefully to Nada Eissa and Jason Furman, they get it!!

Next, earlier today, Jeremy Siegel, Wharton professor of finance, joins the 'Halftime Report' to discuss the market response to the hotter-than-expected CPI report.

Like I stated on LinkedIn earlier:

Have tremendous respect for professor Siegel, at least he states his views openly, but he was smoking "hopium" on CNBC's Halftime Report earlier today. A "No Landing" scenario in the second half of the year? The Fed will cut rates in second half of the year? I think it will cut because of a very hard landing resembling a depression and when they cut in 100 basis point chunks, stocks are going to go down even more (as panic sets in)!! Beware here, even super smart professors like Jeremy Siegel and Campbell Harvey don't see it yet but Edward Leamer's seminal paper "Housing Is The Business Cycle" will prove them ALL wrong.

And Michael Kantrowitz, chief investment strategist and head of portfolio strategies at Piper Sandler, joins 'Squawk Box' to discuss today's CPI report numbers, forecasts about further drops in earnings expectations, and the consequences from the lag effect of inflation. 

Trahan hired "Kantro" back at Cornerstone Macro, taught him (almost) everything he knows but I'll give him a plug here as he's now at Piper Sandler and even though he's bearish, he's still too bullish in my eyes. How does S&P blow 3,000 sound to you? Stick around, the nightmare is just beginning.

Lastly, to cheer you up, watch this movie, it's a classic and so funny!

Update: 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).