OTPP ‘battening down’ portfolio companies to prepare for next downturn

The $147bn pension manager is making sure its direct investments have the ‘right management and covenant-lite financing facilities’, as it anticipates the next downturn, says Ontario Teachers’ director of funds.

Ontario Teachers’ Pension Plan, which has 70 percent of its C$30 billion ($23 billion; €20 billion) of private equity assets in direct investments, is preparing for the next market downturn by securing its portfolio companies.

“What we are trying to do now is really to batten down operations of our portfolio companies – making sure that we have the right management in place and making sure we put any financing facilities in place with lite covenants, so the company does not run into any trouble, should there be a downturn,” Olivia Ouyang, director of funds and co-investments told industry participants at HKVCA China Private Equity Summit 2018 on Tuesday.

Ouyang noted that the investor holds stakes in about 50 companies globally, such as insurance brokerage company BroadStreet Partners, UK biscuit manufacturer Burton’s Biscuits and Oslo-headquartered tech apparel company Helly Hansen.

Another way OTPP protects itself against uncertainty in the market is through direct secondaries deals. Ouyang said: “We also take advantage of some of the frothy valuations and sell a minority slice of our companies that we have control in, and still maintain some control [after the sale], thereby realising those gains.”

In addition, the Canadian investor has an eye on special situations funds, that “could be very good if there ever is a downturn, to take advantage of that vintage,” she pointed out.

OTPP’s net assets reached C$189.5 billion as of end-December 2017, of which 7 percent is invested in Asia and 2 percent in Australia and New Zealand.

The investor’s private capital department, which invests directly in private companies, either on its own or with partners, and indirectly through private equity funds, made its first investments in China and India in 2017. It invested in the wellness brand Pure Group alongside FountainVest Partners and teamed up with Kedaara Capital to acquire a stake in Spandana Sphoorty, a micro-finance institution.