Canadian pension funds have often led the way in the world of private equity. They were among the first to invest serious amounts in the asset class, to build up in-house investing capabilities and to see the value of direct and co-investing in bringing down fees. Of the 30 biggest investors in private equity, six are Canadian, according to Private Equity International’s Global Investor 100 ranking.

Last year, in response to client demand, another Canadian institution set off on a similar path. Investment Management Corporation of Ontario, a C$70.3 billion ($55.2 billion; €45.5 billion) manager that invests on behalf of public pensions, laid out plans to grow its PE portfolio from C$2 billion to C$6 billion and build a 20-strong investment team to conduct due diligence and execute on co-investment opportunities – all by 2025.

In January 2020, managing director Craig Ferguson joined from Manulife Capital, where he had spent nine years making private equity and debt investments. He has since overseen the growth of the team from four members to eight. In October, it committed C$1 billion across three vehicles: Nordic Capital’s Fund X, Kohlberg & Co’s Fund IX and Morgan Stanley Capital Partners’ North Haven Capital Partners VII.

“We are starting these partnerships in earnest with fairly large cheques and looking to drive co-investment and direct investment, while building our capabilities behind the scenes to keep up with it,” said Ferguson, whose institution features on the cover of PEI’s February issue.

This strategy of using fund commitments to leverage low-fee co-investment opportunities has been successfully deployed by other institutions, notably Canadian pensions. A 2017 study by CEM Benchmarking found that the “Canada model” produced 0.6 percent more in returns than a diversified passive index. Recent research by Capital Dynamics found that co-investment funds outperformed commingled funds of the same vintage by between 2.3 and 4.3 percentage points.

Building a portfolio at speed, however, is no easy feat. Competition for top-performing funds has become fiercely competitive. Some large, well-established limited partners have had their allocations downsized because they were unable to move quickly enough. As a new entrant, how do you stop this from happening?

The need to put money to work quickly requires an LP to generate more high-quality opportunities. How does an LP develop the capability to manage the increased workload while maintaining the highest standards of diligence?

According to Bain & Co, fierce competition for funds and fantastic distributions meant that, pre-pandemic, many LPs were unable to recycle gains fast enough to maintain their target allocations. Has covid-19 changed this and can it work to the advantage of a group such as IMCO?

To find out, check out the Deep Dive in our February issue on how IMCO is approaching these challenges and how GPs can get in on the action.

Contact the author at rod.j@peimedia.com