Thanks to Washington, we know how CPPIB is doing

My advice has fallen flat to date, but CPP Investment Board could do a much better job disclosing how our individual investments are doing (see prior post “CPPIB should take a page from Oregon’s book” Sept 12-10). Today’s example is from Washington State, which, like Oregon, goes about as far as one can on the transparency front.

But, have no fear. With Washington State’s help, we can get a little deeper into some of the mega commitments we’ve made to the buyout space over the past few years. You see, CPPIB and Washington State share some key GPs, which means that we can deduce the CPPIB’s true financial results from what the Washington State Investment Board has experienced via the same investment teams on these eleven different funds — except for the pain of the every-increasingly strong Canadian dollar, that is.

According to CCPIB’s most recent disclosure (see prior post “CPPIB Q3 2010 General Partner performance numbers” Feb 28-11), this is how we are doing in the fund’s home currency (USD). I’ve added the Washington State return in italics.

The figures that follow cover four categories: CPPIB’s commitment, paid-in-capital (which tells you how much of the fund is invested in deals and/or drawn to pay management fees), reported value, and reported value + distributions (which tells you what the notional simple return of the fund is against the paid-in-capital figure). That figure is based in large part on what the manager believes the portfolio is worth as at Sept. 30, 2010, subject to GAAP fair value accounting. The year in the brackets reflects the year that the investment commitment was made by CPPIB. MM equals millions:

Blackstone Capital Partners V (2005): $410MM, $375.1MM (92%), $333.3MM, $375.1MM; 0%

Washington State’s IRR: 0.3%

First Reserve Fund XI (2006): $300MM, $244.6MM (82%), $225MM, $253.5MM; +4%

Washington State’s IRR: 0.56%

First Reserve Fund XII (2008): $500MM, $221.8MM (44%), $128.5MM, $147.8MM; -33%

Washington State’s IRR: -22.88%

Hellman & Friedman Capital Partners VI (2006): $400MM, $304.7MM (76%), $333.9MM, $363.2MM; +19%

Washington State’s IRR: 7.0%

KKR Millenium Fund (2002): $282.5MM, $329.6MM (117%), $263MM, $479.4MM; +45%

Washington State’s IRR: 18.6%

KKR 2006 (2006): $475MM, $370.7MM (78%), $385.9MM, $416.9MM; +12%

Washington State’s IRR: 3.26%

Providence Equity Partners VI (2006): $400MM, $312MM (78%), $276.8MM, $306.4MM; -2%

Washington State’s IRR: -0.8%

Silver Lake Partners II (2004): $100MM, $95.8MM (96%), $84.2MM, $126.9MM; +32%

Washington State’s IRR: 8.38%

Silver Lake Partners III (2006): $500MM, $295MM (59%), $311.1MM, $330.2MM; +12%

Washington State’s IRR: 9.88%

TPG Partners V (2006): $500MM, $495.3MM (99%), $315.2MM, $406.4MM; -18%

Washington State’s IRR: -8.15%

TPG VI (2008): $750MM, $223.2MM (30%), $191.4MM, $199.4MM; -11%

Washington State’s IRR: -12.28%

Of the eleven funds we share with Washington State, CPPIB appears to have a negative internal rate of return on four of them, and another two have an IRR of less than 1%. And that’s in US$, which means in almost every case, CPPIB’s results are far worse since we were investing Canadian dollars at far less favourable exchange rates when these funds were drawing down the capital over the past number of years.

It isn’t very scientific, but our average IRR on these eleven funds is 0.35%. And that’s before the pain of the currency move.

Jiminy Cricket! If these IRRs are at all indicative of what we are experiencing across our entire pool of 132 fund investments, we are in one very deep hole.

MRM