Infrastructure and Private Equity
OPTrust's private markets program was launched in 2006 to build a globally diversified private equity and infrastructure portfolio. Under OPTrust's long-term diversification strategy, each of these portfolios will eventually account for 15% of the Plan's assets (30% in total).
In 2012, these portfolios reached a combined market value of $2.5 billion at year-end, up from $1.5 billion in 2011.
In 2012, both portfolios continued to exceed expectations, reflecting the value added through active management by OPTrust's Private Markets Group, and its strong performance in global markets. These returns result from a combination of reoccurring income and gains from individual investments.
Infrastructure investments returned 23.7% in 2012, well above the infrastructure benchmark return of 5.7% (CPI + 5%). Since the portfolio's inception in 2006, OPTrust's infrastructure investments have generated an average annual return of 19.2% compared to 6.7% for the portfolio benchmark.
The Plan's private equity holdings generated a return of 20.5% for the year, outperforming the 18.4% private equity benchmark return for 2012. Since inception, the portfolio has produced an average annual return of 7.5%, compared to a return of 2.2% for the portfolio benchmark. Fuelling the returns for 2012 were two exit events: the sale of OPTrust's investment in Data Explorers Group and the partial sale of Alliance Boots.
Choose the tabs below for more information on our Private Markets Group, case studies from our portfolio, or contact information for our internal investment team.
Private Markets Group
OPTrust's investments in private equity and infrastructure are managed by the Private Markets Group (PMG), an internal team established in 2005. The PMG consists of 21 investment professionals, located in Toronto and London. The team was recruited internationally and has extensive global experience with private equity and infrastructure funds, investment banking, corporate strategy, operational management, financial analysis, accounting, and corporate law. PMG team professionals are active across both portfolios and have the skills to develop and consider a broad array of investment solutions.
The PMG is a responsive and efficient partner, with appropriate resources and proper internal governance. The team has full middle- and back-office capacities to support its investment strategies. Extensive delegated authority from OPTrust provides the team with the ability to make decisions quickly and independently, engage in proactive deal generation, and consider unconventional strategies and emerging managers.
Contact information for members of the team.
The current target allocation for both portfolios is approximately 40% in North America, 40% in Europe, and 20% in Developed Asia and emerging markets. In each region, the PMG has identified key countries, potential partners, and investment strategies considered attractive.
The infrastructure portfolio focuses on principal investments with a limited number of funds and secondaries. The PMG has deep expertise in sectors including transportation, communications, power generation, resource extraction, utilities, water and waste water, and waste management. OPTrust's infrastructure portfolio had a NAV of $969 million and committed capital of $1,487 million at the end of 2011.
The private equity portfolio focuses on funds, secondaries, and principal investments. The PMG concentrates on working with a small but stable number of fund relationships intended for the long-term. The current areas of focus include credit opportunities, special situations, buy-outs, and growth equity. OPTrust's private equity portfolio had a Net Asset Valuation (NAV) of $547 million and committed capital of $973 million at the end of 2011.
If you are interested in learning more or feel you may have an opportunity that would be of interest, please contact our team members, e-mail firstname.lastname@example.org, or call our offices in Toronto (+1-416-681-3043) or London (+44-207-009-1100).
Infrastructure and private equity — part of a balanced portfolio
Infrastructure investments include rate regulated investments in such sectors as water, gas and electric utilities; transportation investments such as toll roads and airports; and long-term contracted investments like power-generating plants and renewable energy projects. Private equity encompasses a wide range of investments, including buyouts, venture capital, credit opportunities and special situations financing opportunities.
The expected benefits of investing in private equity and infrastructure include:
- improved diversification and lower volatility of plan returns, since private markets and public stocks and bonds do not necessarily move in the same direction at the same time
- higher risk-adjusted returns than public equities, due to the direct involvement of the Plan's internal portfolio managers in structuring transactions and in the ongoing management of the investments
- better matching with the Plan's indexed pension liabilities due to the sensitivity of infrastructure returns to changing inflation rates, which results from the regulatory and contractual frameworks supporting these transactions.
Case Study: Oceanex
In 2006, changes to federal tax regulations created an opportunity to acquire publicly-traded income trusts. After indentifying a number of potential investments and conducting extensive due diligence, OPTrust's Private Markets Group worked with investment partners to acquire Oceanex in the fall of 2007.
Oceanex is a long-established integrated port terminal and intermodal freight transportation company that owns and operates three vessels, port equipment and infrastructure, and a fleet of trucks providing short-sea marine services between Halifax, Montreal and Newfoundland. The company also holds long-term leases to and operates the two largest marine container and trailer terminals in Newfoundland.
Since the acquisition, OPTrust has been active on Oceanex's board of directors, participating in the strategic and financial direction of the company. Together with our investment partners, OPTrust has worked with Oceanex's senior management to strengthen the management team, improve health and safety standards, and order a new environmentally-efficient vessel. In 2012, Oceanex was named one of Canada's 50 best managed companies and continues to provide stable returns to help support the Plan's pension promise.
Case Study: Data Explorers Group (DEG)
DEG is the leading information services provider to the global securities lending market. DEG supplies data and analytics to investment banks, hedge funds, asset managers and other clients through market-data platforms such as Bloomberg, Factset and Thomson Reuters.
OPTrust invested in DEG in April 2007 as part of a co-investment alongside UK-based private equity fund Bowmark Capital. OPTrust recognized DEG as an attractive investment based on its competitive position in a specialized market, strong management team, and scalable and highly cash-generating business model.
DEG achieved impressive annual growth over the past five years, transforming itself from a small UK-based business to a globally dominant player and generating annual sales and profit growth of 30% and 40%, respectively. In April 2012, DEG was sold to a strategic buyer.
The exceptional performance of this investment reflects key strengths of OPTrust's private markets program, including our ability to source attractive opportunities, perform rigorous due diligence, invest with trusted partners, ensure effective management of the asset and realize a substantial gain for the Fund through selling on the best possible terms.
Kevin Warn-Schindel, Group Head and Managing Director
Overall operational responsibility for the management of the PMG and chairs the Private Markets Investment Committee; founded PMG in 2005
Phone: +1 416.681.3018
Spencer Miller, Managing Director (London)
Responsible for London office and private equity investments in Europe and Asia
Phone: +44 (0) 207.009.1111
Stan Kolenc, Managing Director (London)
Responsible for infrastructure investments in Europe and Asia
Phone: + 44 (0) 207.009.1112
Sandra Bosela, Managing Director
Responsible for private equity investments in North America
Phone: +1 416.681.3019
Gavin Ingram, Managing Director
Responsible for infrastructure investments in North America
Phone: +1 416.681.3025
John Walsh, General Counsel
Responsible for transaction structuring, corporate governance, and operations
Phone: +1 416.681.3056
Doug Michael, Chief Financial Officer
Responsible for financial reporting and information systems
Phone: +1 416.681.3014
Jim Ovenell, Director, Portfolio Analytics
Responsible for portfolio analytics & risk management
Phone: +1 416.681.3055
Jordan Berger, Director, Policy Compliance
Focus on responsible investment due diligence
Phone: +1 416.681.3043