LP Radar: Wiseman's move

2015 has already been a year of significant change at the Canada Pension Plan Investment Board (CPPIB), both in terms of operations and portfolio construction. Close watchers of the Toronto-based pension, which has always been on the forefront of innovation, were surprised by a news item appearing in Canadian newspaper Financial Post last December citing an internal memo which detailed an operational restructuring. 

A new management structure has been put in place to reduce the number of direct reports to Mark Wiseman from ten to seven, and “to better align incentives with an increased focus on total return”, according to the memo. A newly formed management committee would oversee portfolio management, risk monitoring, performance management and governance.

Soon after, at the tail end of January, we learned that Andre Bourbonnais, managing director and head of private investments, had left to join the Public Sector Pension Investment Board in Montreal as CEO. Concurrently, CPPIB moved to update its organisation chart by promoting private investment executives Mark Jenkins and Pierre Lavallee.

Jenkins will take over most of Bourbonnais’ investment responsibilities, while Lavallee will become senior managing director and global head of investment partnerships. The latter is a new department that will focus on building better relationships with CPPIB’s external managers in private and public funds, secondaries and co-investments, and will work to expand direct private equity investments in Asia.

Further expansion in Asia is clearly an important area of focus for Wiseman. Speaking at the Toronto Region Board of Trade annual dinner in late January, he had his eyes firmly on the region, saying that Canadian companies needed to “do more” to expand their global reach, and that the Canadian government should do more to encourage immigration from these growing economies.

He noted CPPIB’s success in taking such a global approach. “CPPIB’s first international office was in Hong Kong – not in New York, not in London,” he said in a written version of his remarks. “We knew having a local presence and talent in this crucial market early-on, would plant the roots for future deals to come. These seeds came to fruition last year when Alibaba – a company our Hong Kong team first invested in privately in 2011 – became one of the most valuable publicly traded companies in the world.” CPPIB made a US $315 million investment in the retailer over two years, before seeing it achieve its feted IPO at the end of 2014.

Wiseman is certain that Asia will continue to produce this kind of success story – and urges Canada not to miss out. “The world’s fastest growing economies are the emerging markets of Asia,” he went on to say. “Yet, despite this stark reality, 90 percent of our current trade is with the OECD, and less than 5 percent is with China. In other words, our trade relationships are overwhelmingly in places where the puck has been, not even where it is today, let alone where it is going to be in the future.”

Neither is it just China that Asia-minded investors ought to pay attention to. CPPIB is planning to open a new office in Mumbai later this year to grow investments in India.

THE NORTHLEAF CONNECTION

Whilst 70 percent of CPPIB’s current investments are outside of Canada, its home market also remains important territory. CPPIB announced in January that it will be expanding its relationship with Toronto manager Northleaf Capital Partners to commit $330 million to a fund of funds vehicle focused on small and middle market Canadian private equity managers with AUM under $1 billion.

“By expanding our successful Canadian fund-of-funds program, CPPIB can effectively access the Canadian private equity market,” said Jim Fasano, managing director and head of funds, secondaries & co-investments, CPPIB in a statement.

The mandate is part of an evolving strategy on the part of the pension that has been in place since 2005, according to a spokesperson for Northleaf. As part of that Northleaf-led strategy, the pension is carefully expanding its investments in Canadian private equity alongside its co- and direct investment programmes.

Prior to creating the new small and middle market mandate, CPPIB committed $70 million to Northleaf’s Venture Catalyst Fund, a fund of funds created in January of last year through the Venture Capital Action Plan, which aims to find high quality venture capital managers across Canada. The idea behind the plan is to create a localised financing environment around new and innovative technology companies which can take on the kind of global view that Wiseman would like to see more of. Northleaf’s venture fund was the first to be established through the action plan, and also includes commitments from other major Canadian institutions including the Canadian Imperial Bank of Commerce, the National Bank of Canada, the Government of Canada and the Government of Ontario.

Back at CPPIB, Wiseman is betting that the pension can benefit from the newly created leaner management structures, the global outlook, and the added emphasis on technology investing. It wouldn’t be the first time that the Canadians are providing a model for other pension plans in America and elsewhere that are currently exploring how best to rebalance and refocus their investment activities – including in private equity.