Le RREO prend une nouvelle approche après 25 ans
Posted with permission from The Globe and Mail
What started in 1991 with a few million dollars has evolved into worldwide private-capital group worth billions
Ontario Teachers' Pension Plan first began to lead the Canadian pension funds' shift from sleepy, passive investors to globe-trotting deal makers 25 years ago.
What Teachers started in 1991 with a few million dollars and its first direct private equity investment has grown into a multibillion-dollar private-capital group active around the world. Others have followed, with new funds specializing in buyouts and turnarounds emerging and more institutional investors seeking to boost their exposure to alternative investments.
Now wrapping up a landmark year, Teachers Private Capital is giving more thought to selling some investments into the hot market.
"We've probably been more focused on taking advantage of where prices are today and lightening up on some of our holdings than we have been on adding new companies to our portfolio," says Jane Rowe, head of Teachers Private Capital division, from headquarters perched in northern Toronto.
Ms. Rowe is taking stock of a private-equity portfolio representing 16 per cent of Teachers' total assets – $28.4-billion as of the end of 2015, the most recent figure available. When the Ontario Teachers' Pension Plan was made independent in 1990, it was just a pile of non-marketable Province of Ontario debentures. Over time, Teachers Private Capital bought up a quirky range of international businesses such as a British lottery, seniors' housing facilities, mattress companies and snack foods. In its next act, Ms. Rowe says Teachers Private Capital will further refine how it sets itself apart from – and partners with – its global competitors.
It has been a profitable run for the country's largest single-profession pension plan. After factoring in asset management, internal and carried interest costs, the group has generated a 20.2-per-cent internal rate of return for the schoolteachers of Ontario since its inception.
Over time, Teachers Private Capital has sent less money to private-equity firms to invest on its behalf, building a team that can do more direct investments that now make up about three-quarters of its holdings. In many cases, the private equity funds that it does invest in have also become co-investment partners on other deals.
There were some hard lessons along the way. A massive $35-billion leveraged buyout bid for Bell Canada Enterprises (now BCE Inc.) that Teachers led in 2007 might have been the world's largest at the time, but instead fizzled out 18 months later. And the group's very first private-equity investment of a 25-per-cent stake in the White Rose Crafts and Nursery Sales Ltd. store chain was a major bust.
"We lost all our money within six months – that's the folklore," says Ms. Rowe of that investment. "But shortly thereafter – about two years later – we did our investment into Maple Leaf Sports & Entertainment. And that's one we held for 17 years," she says. Teachers' sold its stake to Canadian telecom giants in 2012 for $1.32-billion.
Twenty years ago, Teachers was already being recognized as a potentially significant source of capital for Canadian mergers and takeovers. But the then-$35-billion pension fund was limited in its investments by the depth of Canada's capital markets, because federal pension laws capped foreign investments at no more than 20 per cent of the total fund.
While finding its footing in the Canadian private-investment world, Teachers private-capital team encountered criticisms that it didn't have the knowledge and experience needed to influence corporate management and boards when it took large stakes in companies, or led hostile bids.
Two decades later, Teachers Private Capital has proven its ability to turn companies around at home and abroad – it built up investments in North America, Europe, Asia, Africa and South America and now has about 70 investment professionals. But the group is being tested in other ways. Keeping the international team focused, engaged and committed to Teachers is the challenge Ms. Rowe thinks about most. "I'm always worried somebody's going to poach them or steal them," she says.
There's also a lot more competition out there for Teachers, not only from other Canadian pension funds that have developed their own robust private-equity investment arms, but from investors around the world. The amount of available money piling up with private equity fund managers, called dry powder by industry insiders, hit a record $839-billion (U.S.) globally in September, 2016, according to research firm Preqin. That has grown from a little more than $500-billion a decade ago.
Teachers' private equity team feels the pressure to prove they can outperform stock indexes that can be bought and managed without the same expense. "You can do that in part through leverage, but really what we kind of say is fundamentally you need to find sectors that you hope are going to outperform GDP over an extended period of time," Ms. Rowe said.
That's why Teachers toasted its quarter-century with a $1.03-billion (Canadian) deal for wine-producer Constellation Brands Inc. this fall, giving the pension plan a cellar full of top wine brands such as Kim Crawford and Jackson-Triggs. Teachers' estimates that Canadian wine consumption is growing at about 4 per cent to 5 per cent annually, compared to a couple of per cent for Canadian GDP.
This deal also recalls Teachers' earlier investments. In the 1990s, the pension plan took a 23-per-cent stake in wine producer Vincor International Inc. for $13-million – a much smaller cheque size than would turn its head today. Teachers later helped the business leap to the public markets. Vincor was then acquired by Constellation Brands about 10 years ago. Now, it's returning to the Teachers stable.
The fund does more direct investing than it used to, which has made its relationships with other private-equity investors more important.
"The further you go in geography from home, the more you should probably have a smart friend at the table as you are doing those transactions," Ms. Rowe said. "If an opportunity came in, for argument's sake, for Colombia or Korea, you know, I'd be kind of saying what makes a Teachers' here at Yonge and Finch the go-to provider of capital there?"
As Teachers built its reputation as an investor among other international private equity heavyweights, it has also relied on its wholesome brand. Everyone has been to school and can relate to paying the pensions of hard-working teachers. It's a tougher sell for private equity firms, which are perceived as making money purely to fatten the pockets of their top brass, Ms. Rowe says. "It's easier to make why we do our investing resonate."
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