LAVCA caught up with Canada Pension Plan Investment Board’s (CPPIB) new Head of Latin America to learn more about why this is a good time to be opening an office in Brazil and how co-investing plays a role in the institution’s overall investment strategy in the region.
LAVCA: Please give some background on CPPIB. What is your exposure to private equity in terms of geography, sector, and stage?
Spielmann: CPPIB is a professional investment management organization that invests the assets of the Canada Pension Plan not currently needed to pay pension, disability and survivor benefits. Our critical purpose is to help provide a foundation upon which 18 million Canadians build their financial security in retirement.
From a PE fund perspective, our Funds, Secondaries and Co-investments group manages C$53 billion and maintains relationships with more than 90 general partners globally.
In terms of our exposure to direct private equity, we invest directly alongside our GP partners, – as at 31 March 2015, we had a total of C$15.8 billion in our direct private equity portfolio, comprised of 30 direct investments across Europe and the U.S.
In addition, we have also directly invested in assets across a variety of sectors like Infrastructure and natural resources for a total amount of C$ 16.7B.
LAVCA: Given the recent opening of a CPPIB office in Brazil, please describe your strategy for Latin America. How does it compare to efforts in other emerging markets? Why is now a good time to open a local office?
Spielmann: I joined CPPIB in 2014 after over 20 years with Bain & Company, the last 14 years working in São Paulo as the practice leader of Bain’s regional Financial Services business. During that time I was able to work in many LatAm countries, including for financial investors on different type of due diligences, as well as work for portfolio companies. This helped me understand investment opportunities and to define our Latin American growth strategy.
While we opened our CPPIB office in São Paulo in 2014, we have been invested in the region since 2006, with our first investment in Infrastructure in the region, Transelec in Chile. And as of March 31, 2015, we had a total of C$7.7 billion, or 2.9% of the fund invested in the region.
As we have done with our other hub offices, the São Paulo office provides us with an important on-the-ground presence. We are optimistic for Latin America as a growing region, which will outpace growth rates of developed economies in the medium and long term.
LAVCA: Can you summarize your current commitments to private equity funds in Latin America?
Spielmann:
- Patria – US$100M commitment to Patria Brazilian Private Equity Fund
- Victoria Capital Partners – US$75M commitment to Victoria South American Partners
- Tarpon – US$250M commitment to Tarpon Partners Fund has a flexible public/private mandate.
- Nexus – US$80M commitment to Nexus Group Capital Partners in Peru
LAVCA: What do you take into consideration when choosing a fund – geography, size, sector?
Spielmann: We invest in funds through a number of investment programs:
- Funds – our funds team focuses on identifying, making and monitoring capital commitments to large- and middle-market buyout and growth equity funds in North America, Europe and Latin America. We remain selective with commitments to large PE managers while actively pursuing new relationships in the middle market and with emerging managers. Investment criteria based on various factors, including:
a. Expectation of outperformance relative to public equities
b. Potential for strategic partnering opportunities - Secondaries – direct and LP secondaries. LP secondaries focuses on the acquisition of funded LP interests through the secondary market; direct secondaries – act as lead investor to provide large, whole fund solutions to either spin out captive teams, or restructure existing funds.
- Co-investments – minority investments alongside our PE fund partners in North America, Europe and Latin America.
LAVCA: What countries in Latin America are of particular interest to you right now? Why?
Spielmann: Our strategy for Latin America is to focus on five key markets in the region: Brazil, Peru, Chile, Mexico and Colombia. These are the markets where we actively pursue investments.
LAVCA: What is the typical size of commitment you make to a fund?
Spielmann: Varies depending on investment group:
- Funds – minimum fund size is US$750 million in developed markets, US$500 million in growth markets with emerging managers. Minimum fund commitment is US$75 million and no pre-determined maximum.
- Secondaries – target investments of US$100 – US$500 million. No pre-determined maximum.<./li>
- Co-investments– target investments of US$50 – US$150 million.
LAVCA: Are you looking to increase, decrease, or maintain your investments to Latin American funds?
Spielmann: Our overall exposure to Latin America is roughly 2.9% (private and public markets) of our fund, and lower than the share of LatAm of the world GDP of around 6%. So we believe that we can grow to a higher level of exposure, including our fund investments.
LAVCA: Please share some background on CPPIB’s direct and co-investment strategies. What types of opportunities are best suited to direct investments and what types of organizations do you look to co-invest alongside?
Spielmann:
- Co-investments – minority investments alongside our PE fund partners in North America, Europe and LatAm.
- Direct Private Equity – focuses on co-sponsorship and other direct private equity transactions, typically alongside existing fund partners but will also seek to invest in additional opportunities not accessible through our co-sponsorship model. Direct investments in private companies with governance commensurate with status in transaction. Wide range of sectors, all geographies.
LAVCA: How do you go about finding and selecting the best emerging market fund managers? Who have you invested in previously? What qualities do you look for in a manager? Would you consider investing in a first time GP?
Spielmann: We are in continuous dialogue with emerging managers in order to indentify new and strong GP’s. We look for strong teams, with top quartile track records and clear investment strategies, besides our threshold sizes as described above.
We look for fund managers who are like-minded and satisfy our pre-determined criteria and are certainly open to discussing market opportunities with existing and emerging fund managers and GP’s from our 5 focus countries in Latin America.
LAVCA: As a long term investor, where do you see CPPIB’s presence and portfolio in Latin America 10 years from now?
Spielmann: Our Fund has grown to C$ 264.6 billion over the last year, with C$ 40.6 billion of investment income in the last year alone. We expect to continue growing our Fund at a strong pace over the next years and also expect that our investments in Latin America will continue to grow commensurate to the growth of the overall fund. As a long-term investor, we see good opportunities to invest in this region and our on-the-ground presence here will certainly help us as we establish ourselves as a preferred partner in the region.