Canada Pension Plan Investment Board's latest deal shows it won't just partner with private equity firms, it will go head-to-head with them for deals — and win.
The board, which oversees the assets of the C$264.4 billion ($212.4 billion) Canada Pension Plan, Ottawa, on June 9 announced an agreement to join with management of Antares Capital, General Electric Co.'s U.S. private equity loan business, to buy Antares for a combined $12 billion.
Of the total, $3.85 billion is CPPIB's equity commitment, and the remainder is debt being assumed by the board and Antares management.
The Antares deal was the first major one in which the CPP Investment Board made the deal alone. It beat out private equity firms including Ares Management LLC, which continues to be part of a separate co-investment with General Electric subsidiary GE Capital — a co-investment GE wants to wind down if Ares and CPPIB can't reach an agreement on taking it over.
“It is relatively unusual for a pension plan to lead a transaction of this size,” said David Fann, president and CEO of San Diego-based private equity consulting firm TorreyCove Capital Partners LLC. “In the past, they partnered or co-invested with private equity funds. It appears that in certain cases, they are now competing with private equity funds.”
CPP Investment Board has advantages over private equity firms in gaining deals because it does not need to set a timeline for an investment, as private equity firms do with investors. Speaking of the Antares deal, Mark Jenkins, senior managing director and global head of private investments at CPP Investment Board, said it's a direct investment “that we intend to hold for the long term.”
Also, the board, as the money manager of a pension fund, has lower capital costs because its funding comes from employer and employee contributions, not from investors, Mr. Fann said. “They have a ready-made source of capital,” he said. “It makes them dangerous. It allows them to do things most private equity firms can't do. ... They don't have to worry about paying management fees and carried interest.”
Mr. Fann also said that because it's a more long-term investor than a private equity firm, CPPIB has lower return expectations.
CPPIB's Mr. Jenkins said Antares was attractive because of its management's “meaningful, personal investment in the business.”