One of North America's biggest institutional investors is pushing into the growth-equity business as it anticipates declines in private company valuations will catch up with those of publicly traded stocks.
Canada Pension Plan Investment Board, which managed C$539 billion ($431.8 billion) at the end of March, is building an arm that focuses on buying minority stakes in closely held firms as global markets face a "great reset," the unit's leader, Leon Pedersen, said in an interview.
Markets are shifting from a scenario in which growth equities were "lifting all boats," to one where it will be easier to differentiate between high-quality companies and those that are more vulnerable, Mr. Pedersen said Thursday.
"It's almost like the perfect storm and it will be easier to identify the winners," he said.
Soaring inflation, rising interest rates and war in Europe have battered global equities, with the MSCI All Country World index tumbling about 15% this year. But the impact of the geopolitical and economic turmoil isn't fully reflected in the valuations of private firms, with potential sellers resisting price cuts for now.
CPPIB plans to wait for them to capitulate.
"It will take some time for the markets to actually find these new levels," Mr. Pedersen said.
The growth-equity team will focus on buying minority stakes in businesses focused on health care, and battery and food technologies, among others, he said. While the pension plan has invested in growth equities for years, it now has a team dedicated to that segment.
Among CPPIB's growth equity investments, according to its website, are 10x Future Technologies, a provider of business-to-business solutions for banks; software and database management firm Aerospike; and DriveWealth, a brokerage infrastructure platform.
Investments in startups are expected to slow this year as growth-stage companies and venture capital firms adopt a wait-and-see approach.
Many businesses have raised a lot of capital but are postponing deployment, Mr. Pedersen said.