Quebec’s public pension fund CDPQ is set to join the federal-level CPP Investments in selling weighty secondary portfolios to free up liquidity towards new priorities.
According to Bloomberg, CDPQ is looking to offload up to US$2 billion in private equity assets in secondary markets, advised by Evercore. It had sold a similar amount of private investments on the secondary market last year. The C$424 billion (US$307 billion) fund is taking advantage of a revival of interest in private equity and rebalancing its portfolio.
Canadian public pension funds invested heavily in private equity at a time when interest rates were close to zero and public equities were facing uncertainty, but were unable to divest last year as they hit their allocation limits in the asset class. The revival in private equity trades has provided an opportunity to adjust portfolios
Bloomberg had previously reported that British Columbia Investment Management (BCI) was looking to offload up to US$2 billion of private equity assets to free up liquidity for more direct investments, including co-investment opportunities. BCI is focused on geographical diversification and it has opened new offices in New York in 2022 (private equity) and London in February this year (infrastructure) in order to originate its own deals; it is also co-investing heavily in emerging markets, such as Indian infrastructure.
Earlier this week, CPP announced it had sold C$2.1 billion of secondary investments in 20 private equity funds to Ardian, indicating that it saw an opportune time to divest as the market for private equity funds is improving. With 26% of its portfolio in private equity, the C$576 billion fund is an active market influencer.
Suyi Kim, Global Head of Private Equity at CPP, said, “This transaction was undertaken as part of our active portfolio management activities. As a systematic buyer and seller in the secondaries market, we see this sale as an attractive opportunity to optimize the construction of our portfolio and to allow us to further support future investments.”
Yesterday, CPP released its quarterly results which reported a range of investments in PE funds totalling around US$1.4 billion. Investments in Q3 included a secondary purchase of a US$100 million commitment to Oak Hill Capital Partners V, which focuses on investing across the industrials, media and communications and business services in the US, and US$50 million in ServiceTitan, a cloud-based software platform, through an equity financing round and a secondary transaction. It also exited its 2016 commitment to the buyout and growth opportunities fund STAR Capital Partners III through a secondary transaction, generating net proceeds of EUR96 million.
CPP is using the proceeds of the sale to invest across a range of strategies, with the potential for further divestments as well-capitalized investors return to the secondaries markets. Canadian public pension funds are likely to shift gear away from private equity towards other allocations with long-term growth potential, particularly those most exposed to energy transition in order to meet ambitious net zero targets.
The fund’s quarterly results reported a weak 0.1% q-o-q return with strong performance in credit and private equities supported by a strong US dollar offset by losses in fixed income caused by high interest rates as well as poor performance in global public equity markets. For the first half of its fiscal year, the fund returned 0.7%.