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CPPIB: Invest for a downturn

The giant Canadian pension, which just signed a sizeable growth investment in the insurance sector, is feeling ‘cautious’ amid sky-high valuations.

Canada Pension Plan Investment Board is feeling “prudent and cautious” and investing accordingly, says managing director and head of direct private equity Ryan Selwood.

Speaking following the pension’s acquisition of a 30 percent stake in online insurance business BGL Group, which owns brands such as comparethemarket.com and BeagleStreet.com, Selwood said: “Valuations are certainly at historical highs. We believe vintage is an important factor in the performance of private equity investments, so we are quite prudent and cautious in the current environment in selecting businesses that have growth potential and will be resilient in an economic downturn.

“Frankly, we would consider this [a downturn] likely during the hold periods of investments we are making today.”

CPPIB invests in private equity via funds, co-investments and direct investments. Private equity accounted for 18 percent of the pension’s C$326.5 billion ($257 billion; €217 billion) assets as of 30 June.

“Frankly, we would consider this [a downturn] likely during the hold periods of investments we are making today”
Ryan Selwood

The BGL Group deal, in which CPPIB competed with an undisclosed set of bidders including some private equity funds, is part of a wider push into the insurance sector globally, Selwood told PEI. The pension has already acquired control positions in Ascot, a Lloyd’s of London syndicate and a global speciality insurance underwriter, and Bermuda-based reinsurer Wilton Re.

“Our multi-billion investments in Wilton Re and Ascot have helped us build up an internal expertise in insurance,” said Selwood. “This investment is part of a multi-year process of creating and evolving a sizeable portfolio of long-term investments in the sector.”

A number of private equity firms, including Apollo, KKR and Blackstone, have acquired insurance businesses, viewing them as a long-term source of assets to manage. “A lot of these guys are after the insurance companies for the same reasons,” Meghan Neenan, an analyst at Fitch Ratings, told PEI earlier this year, “and that is the opportunity to sub-advise on some of the cash that they invest. The alternative managers look at it as dry powder that’s theirs for the taking, in a way.”

For a pension like CPPIB, this is not the case. “We have access to capital at scale,” says Selwood. “So the appeal of insurance is long-term growth and cash yield. In this particular case, BGL Group helps us build our portfolio with a fast growing, disruptive, digital consumer insurance distribution business.”