OMERS PE portfolio soars amid strategy shift

OMERS Private Equity’s portfolio recorded a 22.2% return in 2010, as the Canadian LP continues moving away from fund commitments in favour of direct investments.

OMERS Private Equity, once one of the largest limited partners in the private equity industry, has almost completely stopped committing to external funds, choosing direct investments as the best way to generate returns for its members.

It’s still too early to tell if the strategy is paying off, but OMERS PE has moved fully ahead into direct investments, making only one fund commitment last year.

What is clear is that OMERS PE’s more traditional portfolio – split about 57 percent in fund investments and 43 percent direct investments – did exceedingly well in 2010.

OMERS PE last week published its 2010 earnings, showing its private equity programme returned 22.2 percent, a big lift from its 13.9 percent return in 2009.

The group made the decision to move more into direct investments and away from fund investments in 2009, and so the returns reflect a portfolio that had not moved very much out of its traditional mix.

“These are excellent returns by all means,” said Paul Renaud, OMERS PE chief executive officer and president.

Industry observers are keen to see whether a portfolio that is heavily weighted to direct investments will produce returns at the same level. OMERS PE’s goal is to eventually have 80 percent of its private equity portfolio in direct investments, and the balance in fund commitments.

When it does make a fund commitment, it will only be re-ups to existing managers and only to funds that in some way help the direct investment programme or give the pension exposure to emerging markets, Renaud said.“We’re not really making new commitments on funds … only on a real exception basis.”

Other pensions in Canada have been moving into more direct investments and away from passive mandates. The Alberta Investment Management Corporate (AIMCo) also announced it was moving more into direct investments in 2009. AIMCo fought hard to takeover Candover Investments last year, a London-listed company that is the parent to Candover Partners. AIMCo, also a significant limited partner in Candover Partners’ funds, scrapped its takeover plans in July.

The Ontario Teachers’ Pension Plan and the Canada Pension Plan Investment Board also have longstanding direct investment programmes and teams.