Has anyone seen CPPIB’s venture bucks? part 2

I have failed you, yet again.

The folks at CPP Investment Board have refused to answer my simple questions about the execution of their $400 million 2010-vintage vehicle that was to fund Canadian entrepreneurs via local venture capital funds (see prior post “Has anyone seen CPPIB’s venture bucks?” Nov. 2-12). Having told the Globe and Mail’s Boyd Erman back in early 2010 that “there is a dearth of capital for midmarket Canadian PE managers and Canadian VC firms,” and being excited “that there’s an opportunity because we believe there are going to be excellent returns,” you’d think that it would fair to ask for an update midstream. They are investing our money, after all.

Here’s how it went:

Good morning Linda

I’m working on a segment regarding CPPIB’s more recent investments in the Canadian venture capital sector. Specifically, I’m focused of the deployment progress being made by CFOF Canadian Private Equity Holdings II, which I believe is the CPPIB’s vehicle for such investments. According to the last CPPIB report (dated March 31, 2012), CFOF Canadian Private Equity Holdings II has drawn $39 million from CPPIB. I have the following questions:

– 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?
– 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?

Thanks, in advance.

And their reply:

Mark,

Please see below the comments that CPPIB is providing in answer to your questions:

As a rule CPPIB does not publicly comment on or provide details on the specific investment decisions of the funds in which it has invested.

CPPIB is well informed regarding the ongoing investment decisions for the $400 million which we are investing with Northleaf Capital Partners through CFOF II Canadian Private Equity Holdings over a five-year period. Northleaf’s mandate focuses on Canadian small/mid-market buyout, venture capital and growth equity funds. The mix of funds is theirs to choose with a mandate to maximise returns without undue risk of loss. We continue to have full confidence in their ability to effectively manage the assets we are committing to them in order to provide risk-adjusted returns to the CPP Fund.

The $39M reported by CPPIB reflects the amount of CFOF II capital drawn to date, a significantly lower amount than the amount of capital committed by CFOF II to underlying investments, which is common in fund of funds vehicles. “

Regards,
Linda

It’s not that they don’t know (being “well informed”); it’s that they won’t say. Given the transparency that one would expect from CPPIB, I foolishly thought I should give them a second chance. There’s nothing commercially sensitive about saying how many Canadian VC funds have received a commitment, is there? I hadn’t even asked for the names, quantums and net returns, even though CPP posted those very same details on its website for years (see prior post “CPPIB Canadian general partner Q1 2010 performance numbers” Aug 13-10).

But how about just the number of funds and proportion between VC and PE? Having cancelled the traditional program of leading VC funds, and choosing to instead deploy that capital via a fund-of-fund manager (Northleaf), isn’t it appropriate to ask how the program is doing? Apparently it wasn’t good news, as they refused my follow-up:

Thanks for responding Linda.

As you probably suspected, the information you’ve provided is already well understood.

I’m trying to find out if, at the halfway point in the fund’s life, the mandate is being rolled out as depicted in the Feb 2010 media interviews that took place at the time of the launch of CFOF II. The Investment Board was very detailed at the time regarding the commitment of this capital specifically to the Canadian venture capital asset class, as well as private equity (growth equity is merely a subset of private equity). Given the lengths that CPPIB went to at the time to publicly describe its specific goals for this capital pool, I don’t understand the reluctance to be equally detailed in response when people follow-up midway through the lifecycle of the investment period.

This is what I got back from CPPIB’s media contact, Linda Sims:

Mark,

In terms of your follow-up question, I refer you to the previous information provided below.

Regards,
Linda

This doesn’t seem to be following the spirit of CPPIB’s own published accountability policy:

We provide regular and timely information on our website helping interested Canadians monitor the activities and investment performance of the CPP Investment Board.

If you’ve been paying attention, even on an off-hand basis, you’ll have noticed that I’ve paid close attention to the investment activities over at our $170 billion fund for years. In the early part of the last decade, CPPIB was the lead investor on several Canadian VC funds, including Celtic House, Edgestone, Lumira, Skypoint, and Ventures West; we’re talking about $25-200 million limited partnership commitments each. Important decisions, that helped drive the industry and the commercialization of countless technologies and research discoveries.

After the 2005 retirement of founding CPPIB CEO John MacNaughton, things changed immediately. CPPIB VPs John Breen (now gone) and Mark Wiseman (now CEO) said they could no longer manage such relationships directly, given the GP’s small size and all. With the loss of their lead investors, Edgestone Ventures II and Ventures West VIII were unable to raise a new fund; Celtic House was inexorably delayed, I’d argue. Overall, the Canadian ecosystem is worse off as a result.

The CPPIB’s VC bucks were all handed over to Northleaf, a Toronto-based fund-of-fund manager; a $400 million lump sum was created in 2006 called CFOF I, for both local VC and private equity managers to draw upon. Northleaf didn’t re-up on Ventures West, for example, and despite eventually committing the Ontario Venture Capital Fund to Edgestone Ventures III (Northleaf also manages that separate mandate), it didn’t appear to commit the CPPIB’s CFOF Fund I capital to Edgestone Ventures III as well; what’s with the left brain/right brain thing? People wondered at the time if personalities were at play on that one.

In February 2010, with great fanfare at the CPPIB, the second generation of this vehicle was announced, as CFOF II.

Historically, CPPIB told the Canadian Innovation Ecosystem exactly who had received a commitment from them and who handn’t (see representative prior post “CPPIB Canadian general partner Q4 2009 performance numbers” May 29-10). Just as Teralys and the Ontario Venture Capital Fund do today.

That all changed under the current management team, and, as you can see above, they don’t want us to know any details in this case, either. One can only assume that’s because the news isn’t flattering. I mean, when the CPPIB co-investment in Silverlake’s Skype deal worked out in 2011, our team was quick to tell the public exactly how much money they made on the deal; an investment I, too, liked when it was first announced (see prior post “Skype deal: is it a tech or infrastructure deal?” Sept 2-09).

When CPPIB’s Freescale LBO deal went public in 2011, the news wasn’t as good. The IPO was priced at 36% below what CPPIB paid going in on the original LBO. Since then, CPPIB’s Freescale shares have fallen another 54%. I’ve not seen any media interviews about that deal.

I guess I’m in good company, if the mainstream media can’t get the details on any of the CPPIB’s unhappy news, either.

I’ve made the point before, and today’s situation is another reminder. Our CPP Investment Board could learn from the transparency of other North American public capital managers, such as Oregon (see prior post “CPPIB should take a page from Oregon’s book” Sept. 12-10), Washington State (see prior post “Thanks to Washington, we know how CPPIB is doing” Mar 29-11), the Pennsylvania State Employees Retirement System, Calpers, Texas Teachers…. All of which provide more detailed disclosure of the performance of their investments than CPPIB.

And not just the good news.

MRM