OPTrust private equity returns 20.5%

The C$14.7bn pension has plans to grow its private equity allocation from 4.5% to 15% during the next few years.

The Ontario Public Service Employees Union Pension Trust’s private equity portfolio had a strong year in 2012, generating a 20.5 percent return.

The C$14.7 billion (€11.1 billion; $14.6 billion) pension has been growing its private equity allocation in recent years, from 3.3 percent at the end of 2010 to 4.5 percent at the end of 2012. OPTrust has a long-term target of 15 percent for private equity, which it expects to hit in less than five years.

The key contributor to our returns over the last three years would have been an overweight position in the distressed market and in special situations

Kevin Warn-Schindel

During the last four years, OPTrust’s private equity portfolio has generated a combined return of 15.6 percent.

“The key contributor to our returns over the last three years would have been an overweight position in the distressed market and in special situations,” OPTrust managing director and head of the private markets group Kevin Warn-Schindel told Private Equity International. “I would also describe the portfolio as having a bias toward mid-market buyout in America, quite frankly in anticipation of what we expect to be a long-term robust bounce back in the US relative to other markets.”

OPTrust has shied away from investing in mega-funds in recent years “given where economies were and what the economics of LBOs looked like”, Warn-Schindel said.

The pension splits its private equity investments roughly evenly between fund commitments and direct investments. OPTrust recently co-invested in specialised auto finance company Coastal Credit alongside US mid-market firm Parthenon Capital. The pension has made direct investments in companies located in Australia, Canada and the US, Warn-Schindel said, including an investment in automotive aftermarket services company Driven Brands alongside New York-based mid-market specialist Harvest Partners.

OPTrust exited its first-ever direct co-investment in April 2012, selling securities lending business Data Explorer’s Group, which it acquired alongside UK-based Bowmark Capital in 2007.

On the fund investment side, OPTrust commits to between 20 and 25 general partners. The pension has about $1.3 billion committed to private equity.

“If you’ve got a GP that’s a solid, top quartile GP that really likes their space, sticks to their knitting and stays in their market, that’s ideally who we’re looking for, particularly in our US lower mid-market strategy,” Warn-Schindel said, adding that the firm has a strong relationship with Water Street Healthcare Partners, which closed its third fund on its $750 million hard-cap after less than two months in market last year.

OPTrust’s entire portfolio generated a 10.1 percent overall return in 2012, led by its infrastructure portfolio, which returned 23.7 percent.