OMERS: ‘complexity is the enemy of good returns’

In an exclusive interview with Private Equity International, OMERS global head of PE Mark Redman explains why the pension fund sticks to “old-fashioned” PE and why it won’t be doing club deals.

Global head of private equity at the Ontario Municipal Employees’ Retirement System (OMERS) Mark Redman keeps the fund’s investors and beneficiaries at the forefront of his mind during every investment decision.

“I will get asked by people why we invest in certain businesses, and you’ve got to be able to stand up in an investor meeting or in a pensioner meeting and explain why you’ve done what you’ve done,” said Redman, speaking exclusively to Private Equity International.

As OMERS continues its push toward deploying 90 percent of its private equity allocation in direct investments within the next five years (it’s currently two-thirds invested directly, one-third via funds), the focus remains on investing in top decile businesses to maximise returns for those beneficiaries.

“It’s old-fashioned private equity,” Redman said. “It’s looking at market-leading businesses in growing markets, cash generative, demonstrable resilience to recession, diversified by geography and product and a proven management team prepared to reinvest.”

Although Redman described the fund as having been “quite ambitious” with the businesses in which it has invested, OMERS certainly takes a conservative approach. After all, as a pension fund, OMERS wants to avoid “losing money left, right and centre”.

“If you want to be a top quartile fund, I would argue it’s probably two-thirds about avoiding mistakes and then one-third about riding the winners,” Redman said. “So far over the last years we’ve managed to avoid making mistakes, I think we’ve done a reasonable job of riding our winners as well, and that’s coming through in the returns.”

That is not to say, Redman added, that all of OMERS’ investments have always gone well; in fact, most of its portfolio companies have had issues at one point or another that have needed to be resolved. It is for this reason – what Redman calls OMERS’ “healthy paranoia” – that the fund only seeks majority stakes or co-lead positions.

“We’re very focused on being able to appropriately influence the businesses in which we invest,” he says. “We try to avoid complexity. Complexity is the enemy of good returns in my experience.”

“You’ve got to be able to pull the relevant levers when things don’t go quite the way that you want in an effective, efficient and timely manner. And if you have complexity, if you’re a minority, if you’re in a club deal, it makes it much harder to do that in an effective manner.”

Look out for PEI’s full interview with Redman, in which he discusses the culture at the heart of the programme and ponders what makes Canadian pensions unique, in the upcoming December/January issue.