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Posted on January 18, 2013 @ 08:32:00 AM by Paul Meagher
The Canadian Pension Plan Investment Board (CPPIB) is the asset manager for the Canadian Pension Plan. Currently, the Canadian Pension Plan has approx 160 billion dollars under management. The mandate of the CPPIB is to grow this asset pool so that Canadians have a secure and growing source of pension funds.
Since 2005, CPPIB has become more involved in private equity investing as a way to help the pool achieve higher rates of return than public market investments.
The CPPIB seeks to be a passive investment partner with top tier Venture Capital organizations. Top tier Venture Capital organizations tend to maintain their performance advantage relative to other
VC organizations which is why they are considered less risky to invest with. For CPPIB to become a limited partner in these VC organizations, the VC organization has to be big enough to handle the large amount of capital the pension fund will minimally invest. The VC fund has to be over $500 million in size and be willing to accept a minimum of $75 million from CPPIB; otherwise such investments won't make much difference to CPPIB's bottom line and it will take too much time and resources to stay involved.
John Breen is one of the top managers of private equity investing with CPPIB. He summarizes their philosophy as "Go Big with the Best":
Historically, the average private equity investment has not exceeded our performance benchmark which is a premium over the public market alternative to reflect the implied risk of leverage. Only private equity
funds in the top quartile have, on a consistent basis, exceeded the public markets' performance, net of fees. If we can identify these top quartile performers which we actively endeavor to do on an ongoing basis, and commit sizeable amounts of money to those firms, we believe we'll outperform both the public market and our benchmark. We have identified approximately 60 fund managers around the world that we anticipate will exceed our performance benchmark.
The CPPIB invests the majority of pension plan funds in large public companies and funds, bonds, and other conservative assets; however, it also needs to grow at an estimated 4.5 percent a year to keep up with the demands on the pension fund and has gotten more into private equity investment for this reason. You can visit http://www.cppib.ca to judge for yourself whether the strategy of "Going Big with the Best" is working and, more generally, how they are investing our pension funds. The graph below suggest that they are doing a good job and are a success story that more Canadians should be aware of.
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