61% of CPPIB Private Equity Commitments sampled are currently below solvency threshold

I hate to break the news to you, but of the 54 Private Equity funds I can analyze, we CPPIB beneficiaries have $9.3 billion committed to underperformers (27 different funds), and just $1.6 billion in the hands of managers (7 different funds) who are producing the types of investment returns that the industry is targeting. If you ask yourself why the CPPIB has produced $1.8 billion of negative value add over the past four fiscal years (see prior post “CPP Investment Board has produced $1.8 billion of negative value-add over a four year period” May 20-13), the answer may well be that for every 7 great funds we have 27 that have not lived up to expectations.

The CPP Investment Board has released its calendar 2012 results of our external Private Equity managers, but we know nothing more than last quarter. I’ve written to the Board of Directors twice in the past five months, but they think we know all we need to about the performance of our $34 billion of private equity commitments. Despite the resounding feedback following my interview on CPPIB’s secrecy by Andy Bell of BNN Business News Network a few months back (see prior post “BNN interview regarding secrecy at CPP Investment Board” Dec. 21-12), the CPPIB Board and management continue to refuse to give you the same information that’s currently available from CalPERS, CalSTRS, NMERB, Oregon, UTIMCO and Washington State Investment Board.

Clearly, our money manager has convinced those who’ve given it “International Recognition for Governance” (IMF, The World Bank, US Congress, and the OECD) that such detail is irrelevant. In fact, in the 2012 annual report, there was a full page on CPPIB’s so-called “transparency”:

Our governance has been upheld as the gold standard internationally for national pension funds. Operating at arm’s length from governments, the organization is guided by a highly qualified, professional Board of Directors. We believe in transparency as the foundation of trust with all our stakeholders and we embrace a high standard of accountability. Canadians can be assured that CPPIB is investing their pension dollars in their long-term interest. We are committed to keeping Canadians informed about CPPIB, our investing convictions and initiatives.

For 2013, the topic was cut from a full page to nine lines on page 63. Guess they figure that we all take it for granted now that they’re a global leader in openness.

Thanks to some blogging spadework, Canadians are still able to track the internal rates of return for 54 of the CPPIB’s 147 externally managed private equity funds. Courtesy of several truly transparent U.S. pension plans, I’ve updated our earlier work for you (see prior representative post “Solvency canary alert?: 59% of CPPIB PE $ commitments producing IRRs below 6%” Dec. 6-12).

This 37% sample size (54 of 147 external funds) gives us a good sense of how our external PE managers are doing given the range of commitment periods, firms, and jurisdictions of the funds I’ve been able to pull together for you.

And here’s the news, 50% of these funds continue to perform below the 6%ish solvency benchmark. That’s the threshold that CPPIB managers need to achieve over the medium term so as not to have to ask for an increase to your payroll deductions. This is an improvement from the 59% figure of six months ago (see prior post “Solvency canary alert?: 59% of CPPIB PE $ commitments producing IRRs below 6%” Dec. 6-12). But the committed dollars involved, at 61% of the sample, are astounding.

IRR Performance of 54 CPPIB Private Equity Funds

30%+ IRR: 4 funds
20-30% IRR: 3 funds
10-20% IRR: 13 funds
7-10% IRR: 7 funds
0-6% IRR: 19 funds
negative IRR: 8 funds

Painfully, we have big money in the weak funds, and bupkis in the strong ones:

IRR Performance of 54 CPPIB Private Equity Funds by Fund Commitment
30%+ IRR: $614 million committed
20-30% IRR: $970 million committed
10-20% IRR: $2.9 billion committed
7-10% IRR: $1.5 billion committed
0-6.9% IRR: $6.7 billion committed
negative IRR: $2.7 billion committed

Here’s how I’ve arrayed the info for you. 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).

The thing I want you to notice is 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 14% gain sounds soooo much better than a 3.6% IRR to the unwashed pensioner, which requires a CPP contribution increase if the entire plan performs at that rate, doesn’t it?:

Advent International GPE VI (2008): CPPIB: +42%, CalSTRS: 15.7% IRR, Oregon: +15.1% IRR

Apax Europe VII (2007): CPPIB: +14%, CalSTRS: +3.8% IRR, Oregon: 3.6% IRR

Apollo V (2002): CPPIB: +107%, CalPERS: 37.7% IRR

Apollo VI (2005): CPPIB: +35%, CalSTRS: 7.6% IRR, Oregon: +7.6% IRR

Apollo VII (2007): CPPIB: +47%, CalSTRS: 22.7% IRR, NMERB: 23.2% IRR

Ares Corporate Opportunities Fund (2003): CPPIB: +56%, CalPERS: 14.3% IRR

Ares Corporate Opportunities Fund II (2006): CPPIB: +62%, CalPERS: 14.0% IRR

Ares Corporate Opportunities Fund III (2008): CPPIB: +46%, CalPERS: 25.6% IRR

Birch Hill Equity Partners III (2005): CPPIB: +48%, CalPERS: 9.5% IRR

Blackstone Capital Partners IV (2002): CPPIB: +134%, CalSTRS: 37.2% IRR

Blackstone Capital Partners V (2005): CPPIB: +11%, CalSTRS: 1.6% IRR

Blackstone Capital Partners VI (2008): CPPIB: +17%; CalSTRS: -9.2% IRR

Bridgepoint Europe II, LP (2001): CPPIB: +72%, CalPERS: 30.0% IRR

Bridgepoint Europe III, LP (2005): CPPIB: +13%, CalPERS: 1.0% IRR, WSIB: +1.0% IRR

Bridgepoint Europe IV, LP (2007): CPPIB: +23%, CalPERS: 4.8% IRR, WSIB: +4.8% IRR

Carlyle Venture Partners II (2002): CPPIB: +9%, CalPERS: -2.4% IRR

Charterhouse Capital Partners IX (2008): CPPIB: +20%, WSIB: +7.7% IRR

Coller International Partners IV (2002): CPPIB: +49%, CalPERS: +14% IRR, Oregon: 14.1% IRR

Coller International Partners V (2006): CPPIB: +32%, CalPERS: +6.8% IRR, Oregon: +6.8% IRR

CVC European Equity Partners IV (2005): CPPIB: +80%, CalPERS: +16.8% IRR, CalSTRS: 16.2% IRR, Oregon: +16.5% IRR

CVC European Equity Partners V (2008): CPPIB: +35%; CalPERS: +9.2% IRR, CalSTRS: 8.5% IRR, Oregon: +8.8% IRR

Diamond Castle Partners IV (2005): CPPIB: +13%, Oregon: +4.0% IRR

First Reserve Fund XI (2006): CPPIB: +12%, CalPERS: +2.9% IRR, CalSTRS: +2.8% IRR, Oregon: +2.4% IRR

First Reserve Fund XII (2008): CPPIB: +6%, CalPERS: +0.4% IRR, CalSTRS: +0.4% IRR, Oregon: +0.2% IRR

FountainVest China Growth Fund (2008): CPPIB: +12%, CalSTRS: 5.0% IRR

Hellman & Friedman Capital Partners V (2004): CPPIB: +145%, CalPERS: +27.6% IRR, CalSTRS: +27.2% IRR

Hellman & Friedman Capital Partners VI (2006): CPPIB: +29%, CalPERS: +6.8% IRR, CalSTRS: 7.0% IRR

Hellman & Friedman Capital Partners VII (2009): CPPIB: -8%; CalPERS: -9.3% IRR, CalSTRS: -9.0% IRR

Hony Capital Fund 2008 (2008): CPPIB: +7%, CalSTRS: +1.4% IRR

KKR 2006 (2006): CPPIB: +34%, CalPERS: +5.5% IRR, CalSTRS: +5.5% IRR, Oregon: [+7.0%] IRR

KKR Asian Fund (2007): CPPIB: +60%, CalPERS: +13.1% IRR, WSIB: [11.4%] IRR, Oregon: +13.2% IRR

KKR European Fund II (2005): CPPIB: +17.0%, CalPERS: +1.3% IRR, WSIB: [1.0%] IRR, Oregon: 2.2% IRR

KKR European Fund III (2008): CPPIB: +16%, CalPERS: -2.8% IRR, WSIB: [-6.1%] IRR, Oregon: -2.3% IRR

KKR Millennium Fund (2002): CPPIB: +57%, CalPERS: +16.5% IRR, WSIB: [16.8%] IRR, Oregon: +16.5% IRR

KSL Capital Partners II (2006): CPPIB: +26%, WSIB: [10.8%] IRR, Oregon: 11.0% IRR

Lexington Capital Partners V (2002): CPPIB: +65%, CalPERS: +19.8% IRR

Magnum Capital (2007): CPPIB: -16%, CalPERS: -4.1% IRR

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

MatlinPatterson Global Opportunities III (2007): CPPIB: +24%, Oregon: +5.8% IRR

Onex Partners (2003): CPPIB: +177%, CalSTRS: +39.0% IRR

Onex Partners III (2008): CPPIB: +5%, CalSTRS: +6.5% IRR

New Mountain Partners III (2007): CPPIB: +19%, CalPERS: +8.3% IRR, Oregon: +8.1% IRR

Permira IV (2006): CPPIB: +27%, CalPERS: +4.0% IRR, WSIB: 5.0% IRR

Providence Equity Partners VI (2006): CPPIB: +15%, CalPERS: +4.1% IRR, CalSTRS: +4.8% IRR

Silver Lake Partners II (2004): CPPIB: +54%, CalPERS: +9.8% IRR, WSIB: 9.8% IRR

Silver Lake Partners III (2006): CPPIB: +36%, CalPERS: +17.3% IRR, WSIB: 16.9% IRR

Terra Firma Capital Partners III (2006): CPPIB: -40%, Oregon: -19.4% IRR

TPG Asia Fund V (2007): CPPIB: -+1, CalPERS: -3.5% IRR

TPG Partners IV (2003): CPPIB: +73%, CalPERS: +14.9% IRR, CalSTRS: +14.8% IRR, Oregon: [14.8%] IRR

TPG Partners V (2006): CPPIB: -8%, CalPERS: -4.0% IRR, CalSTRS: -3.3% IRR, Oregon: [-3.4%] IRR

TPG VI (2008): CPPIB: +15%, CalPERS: +5.0% IRR, CalSTRS: +5.2% IRR, Oregon: [+6.0%] IRR

Triton Fund III (2008): CPPIB: +13%, WSIB: 2.3% IRR

Welsh, Carson, Anderson & Stowe X (2005): CPPIB: +27%, CalPERS: +5.0% IRR, CalSTRS: +5.0% IRR

Welsh, Carson, Anderson & Stowe XI (2008): CPPIB: +19%, CalPERS: +11.5% IRR, CalSTRS: +11.4% IRR

MRM