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LP Profile: CPP Investments

Delaney Brown of CPP Investments — Delaney Brown from CPP Investments

Sorcha Williams
10 July 2020

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Unquote’s Sorcha Williams recaps key takeaways from CPP Investments’ latest annual report, and hears from head of PE funds Delaney Brown about the Canadian LP’s outlook on fund allocations, direct investments and secondaries

CPP Investments (CPPI) was established in 1997 to oversee and invest on behalf of more than 20 million contributors to the Canada Pension Plan. With an initial size of $8.8m in 1997, the fund now has a total of $297bn in assets under management as of 31 March 2020.

According to the group’s annual report, the fund’s exposure to private equity stands at 24.7%, with assets worth $67.4.6bn in 2020, up from $62.5bn at the end of its 2019 financial year. Despite the uncertainty introduced by Covid-19, the fund’s diversified PE portfolio continued to outperform the returns of the relevant public equity benchmarks on a five-year basis, the group said in its report. Over the past five years, PE generated a net return of 12.3% and net income of $27.1bn.

“We take a long-term approach to private equity and believe in patient capital to deliver strong, risk-adjusted returns over cycles,” CPPI’s head of private equity funds, Delaney Brown, told Unquote. He added that there were no plans to scale back the fund’s allocation to PE, but rather that CPPI is looking into new areas in which it can invest. In 2019, a new office in San Francisco was set up and a new venture capital programme established, with current investment of $149m so far across four GP relationships.

CPPI has 167 private equity professionals across five offices globally and this is reflected in the geographic diversification of its holdings. As of 31 March 2020, the split globally was weighted at 64.2% in the US, 14.8% in Asia, 12.5% in Europe, excluding the UK, 4.9% in the UK and 3.6% across the rest of the world, according to the annual report.

Co-invest and direct investments
Across the $67.4bn private equity asset base, CPPI’s PE portfolio is split evenly between direct (including co-investments) and fund investment strategies, with 152 direct investments and 152 manager relationships currently.

CPPI recently made a direct investment in US-based self-driving car company Waymo’s first external investment round, alongside Silverlake and Mubadala Investment Company, in a deal worth $2.25bn. Another notable direct investment was in Merlin Entertainments, the second largest themed attractions provider in the world; CPPI invested alongside Blackstone and Kirkbi in a transaction valued at £5.9bn, with Blackstone and CPPI together acquiring a 50% stake.

One investment hit hard by the coronavirus pandemic was portfolio asset HotelBeds, which faced immediate liquidity issues as demand dropped due to the cessation of travel. CPPI, along with fellow sponsors Cinven and EQT, undertook a €430m capital injection for the company in April.

Funds strategy
Despite the higher concentration of risk and greater exposure of certain sectors to the pandemic, and the fact that some LPs have been negatively impacted by their direct and co-investments, Brown told Unquote that CPPI was not planning to scale back on this area of the strategy since the organisation still believes in the partnership approach.

In the 2019/20 financial year, the PE funds portfolio grew from $23.2bn to $23.7bn and the group made commitments to 22 funds to the tune of $6.8bn. Of these 22 fund commitments, 14 represented existing relationships with GPs, including two that backed adjacent strategies to the manager’s core platform. The remaining eight investments were done with new managers. According to Unquote Data, CPPI made commitments to funds including TPG Partners VIII fund, CVC Strategic Opportunities Fund II, CVC Global Special Situations Fund II, Bain Capital Europe V and Vista Equity VII in 2019.

“We have been really busy since the start of the year and one thing that surprised me was the resilience of the fundraising environment, in terms of how many managers have been able to attract LP capital and hit closes,” said Brown. He added that CPPI’s pipeline remained full, with recent closes including a re-up to Clayton Dubilier & Rice Fund XI, and more now at the final investment committee stage.

In terms of secondaries in the last financial year, CPPI’s dedicated team led the full or partial sale of $1.8bn in net asset value in LP interests across five transactions in the fund’s portfolio. This comes as the organisation is taking a more cautious approach to secondaries investments on the buy-side, given growing market uncertainty, with $496m invested across six transactions in the year.

Key team members
Delaney Brown is head of private equity funds. He joined CPPI in 2013 and leads the team responsible for fund investments across Europe and North America.

Shane Feeney is senior managing director and global head of private equity. He leads CPPI’s private equity programme, including teams dedicated to investments in direct private equity, Asian PE, PE funds and secondaries.

Ryan Selwood is managing director and head of direct private equity. He leads the direct private equity team of 60 people based in Toronto, London, San Francisco and New York.