Ontario Municipal Employees Retirement System (OMERS) global head of private equity Mark Redman told Private Equity International that it was less concerned about the ongoing debate about fees because the firm focuses on direct investments.
“Clearly there’s a need to account for fund fees but the reality is, the GP-PE model is predicated upon a carry payment,” Redman said. “I find it surprising that any institutional investor wouldn’t be aware of that; we were certainly acutely aware of that.”
He said part of the reason why OMERS established its direct investing programme was because it was aware of high fees being paid to fund managers in the traditional PE model.
“It’s not that the model is bad, but if you have confidence as an institution to create your own PE business, that’s a great way to reduce fees you might otherwise lose,” he said. The issue around fees sounded like failure of accounting, he noted.
“Frankly we’re less excited about [the fee debate] because a majority of our investing is done by ourselves,” he said.
OMERS engages in not only direct investment but also co-investments. Redman said it makes sense for some large transactions to include co-investors for risk purposes. For example, in June OMERS PE acquired Environmental Resources Management (ERM) for $1.7 billion with the Alberta Investment Management Corporation (AIMCo) as a co-investor.
Redman serves as the executive vice president and global head of private equity at OMERS Private Markets, a branch of OMERS established in 1987 to invest specifically in private equity on behalf of the pension system.
The fund is targeting 90 percent direct investments, as reported previously by PEI.
OMERS is interested in business services, industrials, healthcare and software sectors and believes in being “geographically agnostic” when searching for the best deals, he said.
OMERS is at its target allocation for private equity at 12 percent, he said.
The system currently manages about CAD$72 billion ($53.97 billion) of assets.