CPP Investment Board Private Equity IRRs

How long has it been? I can’t begin to count the weeks.

And yet you keep asking “where are the blogs”, just the same. So, to satisfy your curiosity and inexplicable continuing interest, I am back. At least temporarily.

In celebration of this week’s annual CVCA conference, I have pulled together a review of the externally-managed private equity portfolio as structured by our managers at CPP Investment Board. It has been a full 15 months since the last review (see prior post “CPP Investment Board’s external Private Equity Managers continue to drag returns” Feb 17-14), which is partly a function of being cowed into submission, while at the same time losing any free time (think bridge) to do the kind of organic early-morning research you’ve come to expect over the past nine years.

As you may recall, CPP Investment Board publishes a quarterly tally of PE fund commitments, the currency of the fund, plus what has been drawn, returned and so forth. Despite my best attempts, they have declined to publish (see prior representative post “CPPIB’s new website fails to improve opaque disclosure” Aug. 8-13) the IRRs for any of these funds, nor the impact of the currency swings on the money that we’ve already deployed, unlike public managers in California, New Mexico, Oregon, Texas and Washington, for example. Nor a pooled IRR calc for our PE investment program, again, unlike the leading U.S. pension funds.

Fortunately, we share enough fund investments (54) with these other pension plans that I’m able to solve for the IRRs on the funds themselves, although the impact of the C$ is still a mystery. With 169 different funds (32%), these findings are likely indicative of the overall PE campaign, particularly since they represent ~C$17B of our C$45.5B of our total external commitments (36.4%).

Following the “simple return” results that are released by the CPPIB are the far more useful “internal rate of return” data provided by one or more of CalPERS, CalSTRS, NMERB, Oregon and WSIB (when a figure is in square brackets, that means it is not as up-to-date as others for that particular fund).

As I always remind, notice the stark difference between the simple return calculations that CPPIB publishes and the true industry-standard investment returns (IRRs) released by these major U.S. public pension plans. Apax Europe VII’s so-called 34% gain sounds soooo much better than a 5.7% IRR to the unwashed pensioner. Particularly since a 5.7% IRR for the overall program would eventually require workers and employers to increase their CPP contributions given the CPP’s solvency threshold is currently 6%:

Advent International GPE VI (2008): CPPIB: +80%, CalSTRS: 17.9% IRR, Oregon: +19.3% IRR

Apax Europe VII (2007): CPPIB: +34%, CalSTRS: +5.7% IRR, Oregon: +5.8% IRR

Apollo V (2002): CPPIB: +109%, CalPERS: 37.6% IRR

Apollo VI (2005): CPPIB: +53%, CalPERS: 9.3% IRR, CalSTRS: 9.9% IRR, Oregon: +9.9% IRR

Apollo VII (2007): CPPIB: +80%, CalPERS: 25.8% IRR, CalSTRS: 26.8% IRR, NMERB: 27.6% IRR

Ares Corporate Opportunities Fund (2003): CPPIB: +59%, CalPERS: 13.1% IRR

Ares Corporate Opportunities Fund II (2006): CPPIB: +66%, CalPERS: 13.6% IRR

Ares Corporate Opportunities Fund III (2008): CPPIB: +59%, CalPERS: 22.3% IRR

Birch Hill Equity Partners III (2005): CPPIB: +90%, CalPERS: 11.9% IRR

Blackstone Capital Partners IV (2002): CPPIB: +149%, CalSTRS: 36.4% IRR

Blackstone Capital Partners V (2005): CPPIB: +60%, CalSTRS: 8.0% IRR

Blackstone Capital Partners VI (2008): CPPIB: +32%; CalSTRS: 19.3% IRR

Bridgepoint Europe II, LP (2001): CPPIB: +70%, CalPERS: 29.6% IRR

Bridgepoint Europe III, LP (2005): CPPIB: +22%, CalPERS: 2.5% IRR, WSIB: +2.5% IRR

Bridgepoint Europe IV, LP (2007): CPPIB: +37%, CalPERS: 10.4% IRR, WSIB: +10.4% IRR

Carlyle Venture Partners II (2002): CPPIB: +11%, CalPERS: 1.5% IRR

Charterhouse Capital Partners IX (2008): CPPIB: +44%, WSIB: +7.7% IRR

Coller International Partners IV (2002): CPPIB: +42%, CalPERS: +11.8% IRR, Oregon: 11.8% IRR

Coller International Partners V (2006): CPPIB: +23%, CalPERS: +9.3% IRR, Oregon: +9.3% IRR

CVC European Equity Partners IV (2005): CPPIB: +91%, CalPERS: +17.4% IRR, CalSTRS: 17.0% IRR, Oregon: +17.2% IRR

CVC European Equity Partners V (2008): CPPIB: +46%; CalPERS: +9.8% IRR, CalSTRS: 9.4% IRR, Oregon: +9.7% IRR

Diamond Castle Partners IV (2005): CPPIB: +2%, Oregon: +1.5% IRR

First Reserve Fund XI (2006): CPPIB: +7%, CalPERS: +1.3% IRR, CalSTRS: +1.3% IRR, Oregon: +0.9% IRR

First Reserve Fund XII (2008): CPPIB: +14%, CalPERS: +4.6% IRR, CalSTRS: +4.6% IRR, Oregon: +4.6% IRR

FountainVest China Growth Fund (2008): CPPIB: +20%, CalSTRS: 7.2% IRR

Hellman & Friedman Capital Partners V (2004): CPPIB: +166%, CalPERS: +28% IRR, CalSTRS: +27.6% IRR

Hellman & Friedman Capital Partners VI (2006): CPPIB: +71%, CalPERS: +12.8% IRR, CalSTRS: 12.9% IRR

Hellman & Friedman Capital Partners VII (2009): CPPIB: +17%; CalPERS: +10.4% IRR, CalSTRS: +10.3% IRR

Hony Capital Fund 2008 (2008): CPPIB: +12%, CalSTRS: +2.9% IRR

KKR 2006 (2006): CPPIB: +52%, CalPERS: +7.1% IRR, CalSTRS: +7.0% IRR, Oregon: +8.5% IRR

KKR Asian Fund (2007): CPPIB: +78%, CalPERS: +14.2% IRR, Oregon: +14.3% IRR, WSIB: +14.2% IRR

KKR European Fund II (2005): CPPIB: +30%, CalPERS: +3.9% IRR, Oregon: +4.5% IRR, WSIB: +4.5% IRR

KKR European Fund III (2008): CPPIB: +44%, CalPERS: +9.7% IRR, Oregon: +10.4% IRR, WSIB: +10.5% IRR

KKR Millennium Fund (2002): CPPIB: +75%, CalPERS: +16.6% IRR, Oregon: +16.6% IRR, WSIB: +17.0% IRR

KSL Capital Partners II (2006): CPPIB: +45%, Oregon: 14.4% IRR, WSIB: +14.4% IRR

Lexington Capital Partners V (2002): CPPIB: +68%, CalPERS: +19.4% IRR

Magnum Capital (2007): CPPIB: +2%, CalPERS: +1.3% IRR

MatlinPatterson Global Opportunities (2001): CPPIB: +76%, Oregon: +15.9% IRR

MatlinPatterson Global Opportunities III (2007): CPPIB: +20%, Oregon: +5.4% IRR

New Mountain Partners III (2007): CPPIB: +29%, CalPERS: +8.2% IRR, Oregon: +8.1% IRR

Onex Partners (2003): CPPIB: +207%, CalSTRS: +38.4% IRR

Onex Partners III (2008): CPPIB: +26%, CalSTRS: +10.8% IRR

Permira IV (2006): CPPIB: +47%, CalPERS: +6.4% IRR, WSIB: +7.4% IRR

Providence Equity Partners VI (2006): CPPIB: +15%, CalPERS: +5.3% IRR, CalSTRS: +5.9% IRR

Silver Lake Partners II (2004): CPPIB: +68%, CalPERS: +10.7% IRR, WSIB: +10.5% IRR

Silver Lake Partners III (2006): CPPIB: +63%, CalPERS: +18.7% IRR, WSIB: +18.5% IRR

Terra Firma Capital Partners III (2006): CPPIB: -36%, Oregon: -19.4% IRR

TPG Asia Fund V (2007): CPPIB: +12%, CalPERS: +3.2% IRR, CalSTRS: +3.2% IRR

TPG Partners IV (2003): CPPIB: +94%, CalPERS: +15.9% IRR, CalSTRS: +15.8% IRR, Oregon: 15.8% IRR

TPG Partners V (2006): CPPIB: +25%, CalPERS: +3.1% IRR, CalSTRS: +4.4% IRR, Oregon: +4.4% IRR

TPG VI (2008): CPPIB: +35%, CalPERS: +11.0% IRR, CalSTRS: +11.1% IRR, Oregon: +11.7% IRR

Triton Fund III (2008): CPPIB: +20%, WSIB: +5.4% IRR

Welsh, Carson, Anderson & Stowe X (2005): CPPIB: +47%, CalPERS: +6.9% IRR, CalSTRS: +6.9% IRR

Welsh, Carson, Anderson & Stowe XI (2008): CPPIB: +44%, CalPERS: +14.2% IRR, CalSTRS: +14.1% IRR

As you’ll see, many funds have pulled themselves out of negative return land. 24 months ago, 8 of the 54 funds that one could analyze had produced a negative IRR; as of Sept. 2014, that figure had fallen to just three. Tomorrow, I’ll break down how these funds are doing based upon capital we’ve committed and vintage year.

(One respectful request of my friends at CPPIB: please don’t shoot the messenger. These figures are objective. The disclosure you provide is by choice. The money being invested belongs to all of us. The performance of the program affects our payroll taxes. You should embrace this sunshine, and be proud to be held to the same performance and transparency standards that you hold the PE and VC industry to.)

MRM