Caisse de dépôt et placement du Québec is set to deploy more capital into European healthcare, business services, tech and financial services companies via roll-ups and co-investments with GPs.
“What we’re aiming to do is increase our overall exposure to Europe, which will include infrastructure, private debt, infrastructure financing as well as private equity,” Albrecht von Alvensleben, managing director of private equity at CDPQ, told Private Equity International.
He noted that the institution’s exposure across asset classes is already “fairly strong” in the UK and France, and that these two remain priority countries. In the near term, the Quebec institution is also looking to “deploy more and diversify more” across other regions within Europe, specifically Germany, the Nordics, Italy and Spain, he added.
“We want to continue to deploy in private equity,” von Alvensleben said.
The Quebec-headquartered institution revealed its European ambitions in October, including plans to invest some C$15 billion ($12 billion; €11 billion) in the region across asset classes over the next four years, the Financial Times reported in October.
In private equity, the investor particularly wants more investments in healthcare, business services, technology and financial services, von Alvensleben said.
“We also want to increase our footprint in infrastructure and then overlay energy transition and sustainability as investment themes across asset classes – those are key priorities for us,” he added.
Europe accounts for roughly a quarter of its C$64.3 billion PE portfolio, which includes fund commitments and direct deals. CDPQ’s allocation has been growing over the past five years, from 17.7 percent in 2015 to 26.2 percent as of end-2020, according to the pension’s latest annual report. That allocation could rise to 30 percent over time, depending on investment activity, realisations and allocations across other geographies, von Alvensleben said.
CDPQ began making direct investments in Europe in 2016; its €200 million investment in French products-testing firm Eurofins was among its first direct deals in the region. More recently, CDPQ participated in the $800 million capital raise of UK insurer Inigo in November last year, alongside Qatar Investment Authority, Stone Point Capital and JC Flowers & Co. It also co-invested with EQT in September that year, when it bought nursing home operator Colisée Group, which operates across France, Belgium, Spain and Italy.
As part of its plans, CDPQ wants to staff up and add up to 30 employees to its 40-strong London-based team. Von Alvensleben noted the hires are across asset classes. He did not provide details on the number of appointments focused on private equity.
The UK stands out because it is the most advanced capital market in Europe, von Alvensleben said. “It’s a market that serves us well in terms of providing opportunities to allocate significant amounts of capital across asset classes, which is not necessarily the case for all European countries.”
While there were concerns around Brexit and its impact on the UK’s economy, he noted that CDPQ has been “mindful to target sectors and industries which are less prone to potential significant impacts”.
“We believe we are in the right sectors in the UK today,” added Lorenzo Levi, a managing director and operating partner for private equity at CDPQ.
“We’ve been committing new equity to grow these businesses and we’ve also been using leverage to increase growth of our companies through buy-and-build integration. It’s a strategy we deploy not just in the UK, but also with other investments in Europe.”
Investment activity in Europe strengthened in the first half of this year, according to Invest Europe’s half-year report. Deal volume reached a record six-month high of €57 billion and there were record totals for both growth and venture investment as GPs directed more capital towards innovative, fast-growing companies.
Levi added that CDPQ’s constructive capital approach is one that is attractive to entrepreneurs – or companies – that want a partner who can work alongside them and enable their continued growth. “That’s a big area of focus for us. We really want to be the partner choice of growing companies.”
Constructive capital, explained von Alvensleben, is about understanding the needs of the counterparty and offering tailored solutions ranging from debt to common equity or structured equity. That also means working in joint teams across asset classes, he added.
CDPQ’s PE portfolio delivered an annual return of 20.7 percent and a five-year return of 14.9 percent as of end-2020, beating its 9.9 percent benchmark index, according to its latest annual report. This was boosted by investments in tech, finance and healthcare. Direct investments, the report highlighted, were the portfolio’s “driving force”, benefiting from the surge in e-commerce and the strength of certain stocks in industrial services sector.
While CDPQ’s PE portfolio outperformed in the past few years and has shown resiliency against the impact of the pandemic, Levi noted that global supply chain woes are a threat.
“One can’t ignore that we are facing big supply chain issues globally, as well as rising costs of raw materials and wage inflation. Retaining talent is also becoming increasingly more challenging.”
Levi said these concerns are on CDPQ’s radar screen. “We are in regular dialogue with our companies to support them and ensure that they have a plan to tackle these new post-covid challenges.
“If you’re not prepared, if you’re not managing inflation pressures, if you don’t have your sourcing right and the ability to attract new suppliers quickly or pass on their price increase, there’s a lot that can happen in your portfolio.”