After planting a flag in NYC, BCI private equity sets its sights on Europe

US and European bases of operation will 'give us runway to continue doing what we’ve been doing', says PE chief Jim Pittman, including 'growing our book of directs'.

As many investors brace for more volatility in 2023, British Columbia Investment Management Corp’s private equity group is preparing for global expansion.

The C$211 billion ($158 billion; €146 billion) BCI took a big step in this direction last year, opening an office in New York City, the pension system’s first outside of Canada. A priority this year will be to beef up that office’s team, Jim Pittman, global head of private equity, told affiliate title Buyouts.

“The US will in 2023 be a much more active market,” he said. “There are already some green shoots that we can see. With the New York location, we get closer to the action.”

BCI is thinking similarly about its next move “onwards to Europe”, Pittman said. The plan is to set up shop in London by the end of 2023. A staff of a dozen will be hired to run the office, which, together with fresh recruits in New York and the Victoria headquarters, will up the PE group’s size to 65 professionals.

US and European bases of operation will “give us runway to continue doing what we’ve been doing”, Pittman said. “That means growing our book of directs and finding more strategic partners along the way.”

BCI’s global initiative follows a spell of prodigious PE growth, culminating in 2021’s C$6.8 billion deployed in the market, a record amount. In addition, the portfolio performed strongly, earning a one-year net return of 29.6 percent and a five-year return of 21.5 percent.

Boost in directs

A major contributing factor to these results was a sharp pivot toward direct investing.

In 2016, a decision was made to allocate a larger portion of capital to co-sponsorships and co-investments. Pittman, who joined BCI that year, and chief executive Gordon Fyfe agreed that a boost in directs, combined with enhanced in-house resources, was key to accelerating a then slow-growth exposure to private markets.

Pittman moved quickly, doubling his team within months of taking the job. Just as quickly, BCI began doing more direct deals: the first, the 2016 acquisition with ATL Partners of Pilot Freight Services, a transportation and logistics provider. Others soon followed, such as the 2018 acquisition with PAI Partners of beverages bottler Refresco.

Both portfolio companies were sold last year. Pilot went to Maersk for $1.7 billion, while Refresco was snapped up by KKR, reportedly for $7.5 billion-plus. The first sale generated a multiple of more than 3.5x, and the second, over 3x, sources told Buyouts. Pittman declined to comment.

Thanks to the ramp-up in directs, their share of PE portfolio assets grew to 39 percent from 21 percent over 2016-21. This, along with increased fund commitments, pushed total assets to C$24.8 billion in 2021 from $7.3 billion six years earlier, doubling private equity’s share of all BCI assets to 11.8 percent.

Investing in dislocation

BCI’s PE strategy targets mostly buyout and growth equity opportunities in North America and Europe. Sectors of interest are business services, consumer, financial services, healthcare, industrials and technology, media and telecommunications, around which the in-house team is organised.

This focus aligns with fund preferences, which are of two types: high-performance GPs and GPs who are solid performers but also need capital as well as deal partners. Alongside the second type, BCI seeks to build its directs book, usually taking ownership stakes in companies of 30 percent to 50 percent.

“We want governance over the assets we’re buying,” Pittman said, for the purposes of driving returns and implementing ESG criteria.

Sponsors who are deal partners account for 70 percent of fund commitments. Working with them and other like-minded investors, BCI was a vigorous dealmaker in 2022, the influence of economic uncertainty notwithstanding.

New transactions included a $1 billion investment in Advent International’s take-private acquisition of Maxar Technologies, a space technology provider. Announced in December, the deal had a $6.4 billion value.

Earlier in the year, BCI agreed to buy a minority interest in Authority Brands, a home services franchisor majority owned by Apax Partners. It also invested in Zedra, a corporate, fund and wealth solutions specialist owned by Corsair.

Pittman expects BCI to be just as active in 2023. In a market characterised by “more volatility and more risk”, not to mention the prospect of a recession, the aim is to “take advantage of dislocation” and an eventual “pick-up in deal levels”, he said. A priority will be “investing in portfolio companies that need liquidity”.

Flush with cash

BCI’s PE group is well-positioned for forthcoming opportunities because, unlike many peers, it is flush with cash. This “prized possession”, Pittman said, owes to selling assets when “markets were on fire”.

Since 2017, C$4.2 billion of fund stakes “no longer core to the strategy” were sold in secondaries deals, he said. The third and biggest of these closed in 2021, helping to lift combined distribution flows to C$8.5 billion.

BCI’s private equity target, which is 15 percent of assets, affords further room to maneuver. To meet the target and reach up to C$35 billion of portfolio assets over the next few years, the plan is to split investing more-or-less evenly between directs and funds.

Arriving at a 50:50 directs-funds ratio is “not an absolute, hard goal, but an aspirational goal”, Pittman said. What is more important is for the strategy “to stay on track”.

“We’ve been diligent in pacing and selling our investments and we have C$2.5 billion in highly flexible capital to deploy this coming year, in an environment where money is no longer cheap,” he said. “We’re optimistic that we can achieve risk-adjusted returns in this market.”

Before joining BCI, Pittman worked for more than a decade as a managing director, private equity, at Public Sector Pension Investment Board.