By David G. Barry
The Canada Pension Plan Investment Board (CPPIB),
coming off a solid fiscal 2021 year, has launched a growth equity unit.
The CA$539 billion ($427 billion U.S.) investment management
organization formed the unit by essentially combining its thematic investing
and venture capital teams, said Frank Switzer, CPPIB’s managing director of
investor relations. It is part of CPPIB’s private equity unit, which is the
plan’s largest asset class at 32%. Switzer said the plan does not disclose the
breakdown for thematic investing or venture capital or what percentage that
growth equity will comprise.
The move is significant because CPPIB is Canada’s largest
pension plan, and more U.S. institutional investors are moving toward emulating
the direct-investing strategy of Canadian pension plans.
Switzer said that the unit was created “to bring together
the expertise and relationships across our organization to create a unique,
scalable investment program where all facets of growth investing are working
together.” CPPIB defines growth equity as taking minority stakes in businesses
that are poised for “transformation growth” and providing them with the funds
and support to make that growth possible.
It is being led by Managing Director Leon Pedersen,
who previously led CPPIB’s thematic investing. Pedersen joined CPPIB in 2019
after roles at Nordea Investment Management and BI Asset Management. CPPIB’s
venture capital arm has been led by Monica Adractas, who is based in San
Francisco. The unit, said Switzer, will look for opportunities in the CA$25
million to more than CA$200 million range.
In a prepared statement, Suyi Kim, CPPIB’s senior
managing director and global head of private equity, said that the plan has
been involved in growth equity transactions for years – even though it did not
have a formal team.
“When we looked across the organization, we recognized that
our team of highly-sophisticated investment professionals had all the elements
required to build a formal growth equity practice that was truly one-of-a-kind
on a global scale,” Kim said.
Sectors where CPPIB has previously made growth investments
include healthcare, fintech, climate change opportunities and automobilities.
Companies that CPPIB has backed that it is including in its growth equity
portfolio include Lulu’s Fashion Lounge, Perfect Day, maker of animal protein,
and Insitro, a drug discovery company.
CPPIB’s move comes on the heels of another Canadian pension
plan, Ontario Teachers’ Pension Plan, renaming its venture capital and
growth equity arm as Teachers’ Venture Growth and disclosing that the unit will
comprise 7% to 10% of its net assets over the next five to 10 years. That’s up
from approximately 3% today.
CPPIB, which manages the capital of 21 million contributors
and beneficiaries of the Canada Pension Plan, had a net return of 6.8% for the
fiscal year ended March 31. Net assets increased by CA$42 billion (US$33.2
billion) during the year. In fiscal year 2021, assets increased by CA$87
billion ($69 billion). Private equity was the strongest asset class, returning
16.1%, compared to 15.4% in fiscal 2021. Infrastructure was the next-best
returning asset class at 10%.