The UK’s referendum on EU membership has “raised the bar in terms of investment criteria” but OMERS Private Equity, the buyout arm of the C$77 billion (€53 billion; $60 billion) Ontario Municipal Employees Retirement System, intends to continue to be an active participant in the UK and pan-European private equity market, global head of private equity Mark Redman told Private Equity International.
“We expect to continue to invest in the right opportunities because we feel that our investment criteria are well-suited to dealing with or taking account of the sort of risks implied by Brexit,” he said. “That’s been proven by the portfolio, that’s not really suffered at all so far.”
OMERS PE, predominantly a direct investor in private equity, currently has six investments in its European portfolio. Only one of these – supported living services company Lifeways – is a “pure-play” UK asset, Redman said.
“All of the others are international in nature,” he said. “That was always part of our investment hypothesis that we would try to back international businesses. That’s one of the reasons you do it, is to create diversification.”
While some in the industry have posited that Brexit could throw up enticing opportunities to buy up UK assets, especially for overseas investors, Redman is not so sure.
“What we’ve seen over time is that people are prepared and able to wait out these sorts of issues when they arise,” he said.
“The amount of forced exits are relatively few and far between still because in a low interest rate environment there aren’t the same sorts of pressures as there are when interest rates are more normal levels.”
Redman said that although Brexit will cause uncertainty in the short- to medium-term, the UK remains a fundamentally attractive place to invest.
“The UK will continue to be a relatively safe haven even with Brexit,” Redman said. “[Brexit] doesn’t undermine the strength of the UK from a regulatory, legal [or] governance [perspective], and it will remain just about the best networked place in the World with a skill-set second to none in the City.”
OMERS PE is taking a more conservative approach to investment this year, but that is more a function of the point in the private equity cycle than any political or macroeconomic concerns.
“We were acutely conscious even before Brexit that we’re seven years or so into a cyclical upturn in private equity terms, pricing’s at an all-time high. We had a very good [investing] year last year, so we’ve been consciously focused this year on realising value where we can in the portfolio.”
As well as a “relatively highly-priced” market making exits attractive, OMERS assets are “getting to a certain point in their lifecycle, five years or so, when it very often makes sense to look at a transition of ownership”, Redman said.
“Not this year but in the next couple of years I’d expect you’ll see one or two [exits] from our portfolio in Europe.”
OMERS PE is well on its way toward its goal of having more than 90 percent of its private equity capital invested directly. Today around 20 percent of its C$10 billion allocation remains in funds.
“I expect that to continue to reduce with natural run-off,” Redman said. “We’ll have no more than half a billion to $1 billion absolute maximum in funds within two to three years.”