OTPP: Value creation ‘absolutely paramount’

The Canadian pension fund, which has just opened an office in Hong Kong, sees operational work as a main criteria in fund manager selection, says Jane Rowe, senior VP.

Ontario Teachers’ Pension Plan sees meaningful operational work as an essential quality of a fund manager, according to Jane Rowe, senior vice president of Ontario Teachers Pension Plan.

“Value creation is absolutely paramount when we think about private equity funds and their future success,” Rowe said. “The way to make money in private equity today no longer rests on financial engineering or IPO markets.”

If somebody makes it into our kitchen, that’s good for them

Jane Rowe, senior vice president, OTPP

Rowe is on a visit to Hong Kong and yesterday she formally opened OTPP’s Hong Kong office, which will cover investment activity across Asia. In the next six months, the pension plan aims to have an Asia staff of eight.

OTPP has $129.5 billion in net assets with about $12 billion committed to private equity. 

In Asia, OTPP has $1.5 billion deployed in private equity plus $1 billion committed to funds it has agreed to back, Rowe said.

Some of the region’s fund managers OTPP has invested in include FountainVest Partners, MBK Partners, Kedaara Capital, Unison Capital, Unitas Capital and PAG Asia.

The pension fund is currently interested in opportunities in India, Southeast Asia and Vietnam. But Rowe said OTPP was not negative on any one market and is viewing the region from a longterm perspective, with an emphasis on the themes of consumer growth and urbanisation.

The criteria for management fees is that there’s a recovery before there’s participation in carry. Other than that, a strong track record and the investment thesis is more important

Jane Rowe, senior vice president, OTPP

OTPP has also done three co-investment deals in Asia. “We would expect to see weighting continue to grow on co-investment and direct investment with our partners.”

Rowe said that OTPP was in the top quartile for private equity returns over the last 21 years, averaging 19 percent net of fees. She expressed confidence in OTPP’s track record in choosing GPs and spoke about the organisation’s criteria for assessing fund managers. 

“For [GPs] to be in our sweet spot, we have to feel comfortable with the governance they have in place and whether they will be able to create co-investment opportunities for us. They should have strong investment backgrounds, records of success and a team chemistry that works well for the team and with us.”

Investment decisions tend not to be based on management fees, she said.

“The criteria for management fees is that there’s a recovery before there’s participation in carry. Other than that, a strong track record and the investment thesis is more important. We see ranges from 1.5 – 2 percent. If the funds have become absolutely massive funds, sometimes we think not 2 percent but 1.25 percent, so [the GP] is focused on creating profit and not living off management fees.”

OTPP also takes comfort if local pockets of capital are also backing a particular fund. “That would help us know that on that advisory board are people with greater local knowledge than we would have.”

Rowe said OTPP receives “hundreds, maybe thousands” of investment pitches in a given year. Last year, globally, it invested in only two new private equity funds.

However, the pension fund tends to re-up in its fund managers, she said. It works with 30 fund managers worldwide and last year it re-upped in about a dozen of those funds.

“If somebody makes it into our kitchen, that’s good for them,” Rowe said.