Has anyone seen CPPIB's venture bucks?

Time flies, doesn’t it?

Think back to February 2010, when CPP Investment Board announced that it was making a new $400 million allocation to Canadian venture and private equity fund managers. Happy times. The vehicle was called CFOF Canadian Private Equity Holdings II, as in Canadian Fund of Fund…. It was the successor to CFOF Canadian Private Equity Holdings I, a $400 million 2006-vintage fund with the same mandate.

At some point in the early part of the last decade, the CPPIB team concluded that it couldn’t manage all of their direct Canadian VC and PE relationships. At first they engaged Edgestone Capital to run the fund-of-fund program, but by 2006, Northleaf Capital Partners had the mandate. It became Northleaf’s happy and important task to decide which domestic fund managers would get part of CPPIB’s new $400 million allocation: the largest pool of its kind in the country at that point. The rumour at the time was that $250 million would go to the PE space, with the balance being committed to Canadian VC funds.

With two key capital deployment mandates, you can imagine the power that flowed to one shop. Very, very few VC funds that didn’t receive Northleaf’s support have survived over the past five years.

As of March 31, 2012, $313.3 million of that 2006-vintage $400 million PE/VC CFOF I vehicle had been drawn; it is unclear exactly how much of the original $400 million was committed, but it is safe to say they got over 80% out the door.

The same can’t be said for the 2010-vintage $400 million capital pool. Industry sources have few, if any, details of which funds got an allocation this time around. According to CPPIB’s own financials, only $39 million of the 2nd generation $400 million pool had been drawn during its first two years (as of March 31/12) – that’s just 10%. As of March 2008, a comparable date to March 2012 for CFOF II, 27% of that first $400 million bucket had been drawn. Quite a dramatic difference, two years in in each case.

Now, you can’t blame either CPPIB or Northleaf if their chosen fund managers aren’t drawing capital. Doing deals is the domain of the underlying fund managers. Unless, of course, the commitments haven’t yet been made in the first place.

And that may well be the difference in 2012, as few Canadian VC fund managers appear to have received any commitment whatsoever from the CFOF II vehicle; at least that’s the scuttlebutt.

At the time CFOF II was launched (Feb. 2010), CPPIB CEO Mark Wiseman told the Globe’s Boyd Erman that he was excited about the opportunity presented by the Canadian venture landscape:

“We agree that there is a dearth of capital for midmarket Canadian PE managers and Canadian VC firms,” said Mark Wiseman, the executive who oversees private equity investments at CPPIB. “We believe that there’s an opportunity because we believe there are going to be excellent returns.”

Since that interview in February 2010, a raft of Canadian VC funds have received a commitment from one Canadian institution or the other. Montreal-based Teralys, for example, has been very busy with its fund-of-fund during the same period:

May 2010: Vanedge Capital I – $25 million of $140 million
Dec. 2010: Georgian Partners I – $10 million of $70 million
Dec. 2011: iNovia Capital III – $50 million of $110 million
Mar. 2012: Lumira Capital II – $25 million of $105 million
Mar. 2012: Merck Lumira Biosciences Fund – $5 million of $50 million
Mar. 2012: Rho Canada – $50 million of $100 million
May 2012: Celtic House Venture Partners IV: $25 million of $105 million
Apr. 2012: TVM Life Science Ventures VII: 65 million of $150 million

The figures are stark: Teralys has committed $255 million to local venture capital funds over a 30 month period. It is unclear if CPPIB’s own venture vehicle has made a single commitment during the same timeframe.

It’s not that CPPIB’s manager Northleaf has missed the window with their other mandates. In fact, they’ve made several commitments from the $205 million Ontario Venture Capital Fund during the 2009-2012 period (mostly in time for a press event prior to the 2012 CVCA AGM). Rumour is that OVCF is actually sold out:

Celtic House
Extreme Venture Partners
Georgian Partners
Lumira Capital
Relay Ventures
Rho Canada
XPV

And let’s not forget the private equity front. Local managers such as Birch Hill, Clairvest Group Inc. and OnCap have also had new closings since February 2010. They, too, would have been eligible for the CFOF II capital, being that it was mandated to look at both PE and VC mandates. We know Birch Hill got a commitment from CPPIB, but that didn’t come via the Northleaf CFOF II mandate; that was a direct deal.

Which leaves us scratching our heads as to the details of the CPPIB’s $400 million. Three questions come to mind:

– How many different funds has CFOF Canadian Private Equity Holdings II committed to since Northleaf received the mandate, as per CPPIB’s February 3, 2010 press release?
– Of those fund commitments, how many are private equity and how many are venture capital in focus? What’s the quantum?
– Of the $39 million of capital drawn as of March 31, 2012, how much has been drawn by “private equity” managers rather than “venture capital” managers?

As a public service, I asked the CPPIB the questions directly. I’ll let you know what I find out; it’s our money, after all. In the meantime, you can consider the bitter irony that Canadians may have actually put more money into the GP motorcycle and Formula One racing sector (see prior post “CPPIB bolts on the racing tyres” Nov. 1-12) during the past 7 years than the entire Canadian Venture Capital landscape combined.

We know the Innovation Ecosystem is on its heels (see prior post “Canadian Business Leadership Forum 2012” Oct 23-12). This might well be one of the answers, if it turns out that capital that been allocated to the Canadian innovation ecosystem is stuck in some bureaucracy somewhere.

MRM