As C$ strengthens, CPPIB's PE commitment shrinks

I’m a few days later than promised, but here is the analysis of CPP Investment Board’s private equity concentration for the recently disclosed quarter. Between drawns and commitments, CPPIB has 21% of its $127.6 billion in assets exposed to the PE sector. That’s down from 25% in just three months.

Here’s the skinny (in C$):

Paid in Capital: $16.649 billion
Reported Value plus Distributions: $18.772 billion
Capital Calls still to fund: $13.042 billion
Total Committed: $29.691 billion

If you took out currency, the value of the program is up 13% on capital drawn to date, leaving aside the other insignificant issue of time value.

One of the difficulties in analyzing the success that CPPIB has enjoyed in the space is the question of currency. As at December 31, 2008, the Euro was trading at 1.705, and the USD was at 1.225. Fast forward to Dec. 30, 2009, and the Euro had fallen to 1.50 and the USD was down to 1.046. Every unhedged LP investment in 90% of CPPIB’s private equity program lost value, all other things being equal. And, as easy as hedging sounds, hedging each capital call would be an unusual approach to the asset class.

Twelve months earlier, the program looked like this as at Dec. 31, 2008:

Paid in Capital: $16.8 billion
Reported Value plus Distributions: $18.119 billion
Capital Calls still to fund: $16.77 billion
Total Committed: $33.61 billion

Amazing, the program’s exposure and the value of the investments shrank during 2009 solely due to the drop in foreign currencies. Obviously, that’s not a useful way to look at a long term investment strategy, but in the world of mark-to-market, those are the stats.

Moreover, all of the capital provided most of the earlier decade is now worth less, too. Even if the fund manager turned a profit, the CPPIB may well have lost money based upon the currency drop.

For those who were worried about CPPIB being overlevered to the asset calls, fear not. With the drop in the C$ over the past 12 months, our unfunded commitments dropped $2 billion in value. Of course, it also had an impact on the value of our strategy, as Paid-in-Commitment value dropped more than $1.2 billion as well.

MRM