CPPIB suffering with bloated PE vintage years

What a difference a change in management makes.

When you think about the CPPIB’s private equity performance and allocation strategy, it is useful to focus on the vintage years. Early returns suggest that CPPIB piled into the asset class at the top of the 30 year PE market, circa 2007, as the dollar value of commitments below would suggest. What is also interesting is the apparent impact of the change in the senior leadership of the CPPIB last decade, with the appointment of a new CEO and new head of the PE fund investing arm in 2005. I’ve added the appointment dates to go along with the fund allocations made plus the returns (using constant Canadian dollars):

June 1999: John MacNaughton appointed CEO; Mark Weisdorf joins as V.P., Private Market Investments in September 2000

2001: $0.9 billion committed, $0.9 billion drawn, value up 51%

2002: $2.4 billion committed, $2.4 billion drawn, value up 51%

2003: $1.1 billion committed, $1.1 billion drawn, value up 81%

V.P. of Private Market Investments, Mark Weisdorf, leaves CPPIB on December 5th

2004: $1.1 billion committed, $1.2 billion drawn, value up 29%

January 2005: New CEO David Denison appointed
June 2005: New SVP Private Investment Mark Wiseman appointed

2005: $3.4 billion committed, $2.8 billion drawn, value up 3%

2006: $5 billion committed, $3.5 billion drawn, value down 15%

2007: $7 billion committed, $3.4 billion drawn, value down 7%

2008: $7.4 billion committed, $1.4 billion drawn, value down 7%

There are plenty of take-aways from this analytical approach. The first is the obvious change in the PE concentration of CPPIB once the new management team was appointed. Between 2001 and 2004, $5.6 billion was allocated to private equity (with a snick for domestic venture capital).

Over the next four years, $22.8 billion was commited to the PE space, presumably by the new management team. Part of that massive jump in allocations definitely had to do with the fact that fund sizes were growing: the pre 2005-vintage KKR fund might have doubled or tripled in size post 2006. To retain their same ownership stake in the new fund, CPPIB would’ve had to commit far larger dollars. But CPPIB’s management team must have appreciated that KKR (or Apollo or Blackstone or TPG) may well eventually draw all of the capital.

Even if the percentage was maintained in the subsequent fund, CPPIB was still growing their allocation to the asset class. At the end of 2005, CPPIB had assets of $81.3 billion, with 3.6% in private equity. For fiscal 2010 (as at March), private equity made up $16 billion (drawn commitments) of $127.7 billion in assets: a 12.5% concentration.

And that big move, without a doubt, seems to track the change in CPPIB’s management team in 2005.

MRM