CPPIB up 4.2% on external private equity investments

Just how is Canada’s biggest investor doing with our dough?

Over the past two days, we’ve shared the private equity and venture capital returns of the CPP Investment Board (see prior posts “CPPIB Canadian general partner Q1 2009 performance numbers” August 30-09 and “CPPIB U.S.A. general partner Q1 2009 performance numbers” August 31-09). You can judge for yourself how the 135 individual funds are doing, at least those that are longer in the tooth. As any institutional limited partner will tell you, the investment returns in the early years are not necessarily predictive of the ultimate fund return profile; unless something has gone completely awry.

It is important to appreciate that a majority of CPPIB’s PE and VC commitments were made in the 2006-2008 period. As such, most investments made by GPs during that window will not have had time to gestate. As vintage years go, these are the “Mothers” of all vintage years in terms of actual commitments to the asset class. Money (via commitments) rushed to the PE space. We’ve never seen anything like it before, and will likely never again.

Here are the facts on CPPIB’s private equity program to date.

Committed capital: $32.639 billion
Paid in capital: $16.595 billion
Reported value: $9.785 billion
Distributions received: $7.486 billion
Reported value + distributions: $17.288 billion

Keep in mind that CPPIB currently has about $116.6B in assets; $9.785B is invested in these LPs, while another $16B can still be called by managers to fund deals; a huge allocation to the asset class, at least for now. The only assumption in any of these figures is that all non-Canadian investments were hedged. This may not be the case, and returns may be better or worse due to the swings in the Euro and U.S. dollar between the time capital was drawn and returned by a GP (general partner).

What this analysis does do, however, is allow you to understand how the investment strategy would perform if not for the benefits or drawbacks of currency changes. I think that is better information in any event, as you’d hope a program didn’t succeed solely due to a devaluation in Canada’s currency.

59% of CPPIB’s value (and therefore return in this analysis) comes from “reported value” stats, while 45% is derived from “distributions” received to date.

The reported value + distributions figure tells us that CPPIB’s entire PE program has generated a 4.2% return since inception in 2000. That’s not an IRR figure, just a simple return on the original investment; so far, of course.

Here they are broken down by geography (again, merely simple return and assuming currency hedges are in place): Funds managed with CDN$ commitments are up 5.1% ($1.4B drawn), US$ commitments are up 7.0% ($10.1B drawn), and commitments made to fund managers that drawn in Euros are down 1.3% ($5B drawn).

MRM