January 13, 2012 / 7:08 PM / 6 years ago

Canada Pension Plan struts its stuff

(Reuters) - Swagger is not usually associated with either Canadians or pensions, but as one of the biggest dealmakers in world, the Canada Pension Plan has cause to strut.

Emerging as one of the world’s most prolific dealmakers in 2008-2009 - as corporate giants beat retreats from the market place - the CPPIB is again poised to add assets to its portfolio as the world teeters on another financial crisis.

“During the financial crisis, the certainty of (our) assets was a material advantage for us,” said Mark Wiseman, senior vice president at the Canada Pension Plan Investment Board.

“We were able to enter into transactions, essentially to be a provider of liquidity at a benefit to us - and cost to those we were providing it to - where liquidity was very dear,” he said. “Going forward ... you are going to continue to see us doing deals.”

As the global crisis boiled in 2009 the CPPIB had a hand in three of the top five global private equity deals of the year, including the largest leveraged buyout: the $4 billion acquisition of IMS Health Inc RX.N, a prescription drug sales data provider.

Next, it was involved in the largest global private equity deal of 2010, the C$5.0 billion leveraged buyout of Tomkins Plc, a British maker of car parts, industrial hoses and bath tubs, which it did in conjunction with Onex Corp OCX.TO.

RETREATING RIVALS

CPPIB is not alone. Other Canadian pension funds with equally aggressive models are also marauding, with a keen eye on assets left as rivals retreat to shore up finances.

Top Canadian competitors like the CPPIB, Ontario Teachers’ and the Caisse de depot et placement du Quebec, to name just the ones with more than C$100 billion ($97.59 billion) in net assets, are on the shortlist of potential buyers for any worthy asset these days, joining the ranks of sovereign wealth funds.

While Teachers, OMERS and other peers are all big and just as hungry for solid investments, CPPIB has an extra advantage: demographics mean rival funds have already matured will soon see benefits outweigh contributions, squeezing liquidity. CPP has a 75-year investment horizon, with contributions exceeding benefits paid until at least 2021.

With pockets that are C$150 billion deep, the CPPIB has the wherewithal to place large and sometimes gutsy bets that are beyond the dreams of most other investment groups. And with more than 600 staff in Toronto, four dozen in London, and two dozen in Hong Kong, its talent is admired by funds twice its size.

“You can’t buy that off the shelf. That’s got to be created and that is something the Canada Pension Plan can do that others would find difficult to do,” said John Ilkiw, a pension expert with Paros Consulting and former senior vice president at CPPIB.

“The tools they are investing in are unique and are the envy of others around the world. They come in, the GIC, the China Fund, other places, they say: ‘How long did it take you to build that tool, what difficulties did you encounter, what kind of legacy systems did you have to overcome? Who actually designed it? Who thought of that?'” said Ilkiw.

The change at CPPIB can be traced back to 2006, when it started to move away from passive investments to make more private equity deals and shape strategy at companies and projects, mostly in real estate and infrastructure.

But braving crisis-shaken markets in 2009, the CPPIB ventured outside traditional pension fund investment parameters to join a consortium led by Silver Lake to buy a majority stake in Internet phone service Skype.

It flipped the asset less than two years later for a more than threefold gain - the kind of turnaround normally unheard of for pension funds, who prefer buy-and-hold kind of investments like bridges and highways.

“We never like to lose money, but given our scale ... we can do two or three or four or five Skypes, and if all it takes is a couple of them to work out, we’ll do well in the end,” said Wiseman, who earned his stripes at the C$110 billion Ontario Teachers’ Plan before moving over to the CPPIB.

“We can afford to lose money on any one deal because we are not having to pay liabilities tomorrow.”

($1 = 1.0247 Canadian dollars)

Editing by Frank McGurty

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