CPPIB Canadian GP Q4 2007 performance numbers part 2

Here’s an update to last week’s CPPIB Canadian general partner Q4 2007 performance numbers post.

Setting aside my stupidity in missing the “Y” reference (as in Yen) to the US$200MM 2007 commitment to Fountainvest’s China Growth Fund, the point I was trying to get across remains. As it allocates capital hither and yon, Canada’s own pension fund appears to be ignoring an opportunity to profitably grow the Canadian economy via its Private Equity commitments.

According to their website, CPP Investment Board had made $26 billion of commitments to the private equity world. The current Canadian allocation is $2.161 billion, although that includes several funds that are in runoff mode. An 8.3% commitment to Canada doesn’t seem all that bleak on a global allocation basis, until you realize that less than a billion of those commitments have been made post-2004, and all but $50 million of that $975 million has gone into buyout or Fund of Fund mandates.

Back in February 2005, CPP Investment Board had committed $7.5 billion to the private equity universe, of which about $1.186 billion was to Canadian entities (15.8%). In the intervening three years, the new CPP Investment Board management team has worked hard to grow their portfolio of international GPs. That success, unfortunately, has meant that Canada’s 15.8% share of commitments has fallen to 8%, and will go ever lower over the coming years.

I know that the Fathers and Mothers of the CPP Investment Board would say that politics and economic development can’t play a role in the decisions that CPP IB managers make when thinking about allocating capital. But I am certain that Canadians, the very people that benefit from the activities of the CPP IB, would not agree that their own capital should entirely vacate Canada in the search of alpha elsewhere.

The fact that Canadian GPs are able to raise funds from a variety of internationally respected pension funds and institutional investors is the point. They exist despite the CPP IB’s lack of interest.

Why don’t Canada’s best GPs also make the cut here at home? And what message does it send to global LPs when the largest investor in Canada hasn’t made a single domestic fund commitment since 2006, and has only added a single new direct Canadian GP relationship (Birch Hill) since 2003?

This was the elephant in the room at last week’s annual meeting of the Canadian Venture Capital and Private Equity Association, and it’s time that the conversations left the privacy of whispers in the corridors.

MRM