Freescale IPO confirms CPPIB's large paper losses

Remember the cheery pieces from the MSM about the CPP Investment Board’s recent home run on our $300 million Skype investment? I wonder if the same interest will be shown in yesterday’s Freescale initial public offering, now that our ~50% paper loss on that investment has been confirmed in the marketplace (see prior post “Freescale IPO won’t skate us back onside just yet” Apr 15-11).

I was a big fan of the Skype deal from the outset (see prior post “Skype deal: is it a tech or infrastructure deal?” Sept 2-09), but one of the challenges with LP co-investing is simply this: do you show them every deal? Or just the ones that are larger than the private equity firm wants to carry on its own balance sheet? If the average mega buyout firm does 12 transactions in a specific fund, and syndicates a third of them to their Limited Partners based solely on the sizes of the equity cheque required, how does the LP pick-and-choose whether to go into the deal or not? One of the primary reasons why pension funds invest into capital pools is to diversify their risk; which is undermined when you double or triple down on a deal (in the latter case you have $ into the same deal via different GPs plus your own direct co-investment).

The strategy worked in Skype, but not with EMI or Freescale, to name but two examples. Strangely, I’ve only read about the specific dollars we’ve made on Skype in the DTM. Try and find the estimates for what we’ve lost on EMI or Freescale (on paper, at least) so as to put the Skype deal in perspective. If your track record on co-investing is, say, 75/25, is that good enough to warrant the added risk? May well be; but let’s have a discussion with some real figures on our wins AND losses. Not just the wins.

Unlike the bloggers, paid journos are able to get the CPPIB’s investment managers to give them the precise quantum of capital we put into EMI or Freescale or TXU; all I could do was guess. With better transparency, I’d feel more comfortable about dancing in the streets when I read about our tremendous successes.

MRM