
LP interview: OMERS

Canadian pension fund OMERS, an established infrastructure investor in Asia, is beginning to make its mark regionally in private equity. Post-pandemic China has provided a foothold
Ontario Municipal Employees Retirement System (OMERS) has been sporadically active in Asian private equity for decades but didn’t establish a physical presence until its Singapore office opened in 2018. Progress has been incremental, and just when it looked like the ramp-up might stall, it got into gear.
A conservative approach has received a counterintuitive boost amid the COVID-19 malaise with a flurry of activity in China. The traction culminated this week with OMERS confirming its first co-investment alongside a portfolio GP in Asia. The Canadian pension plan made a commitment of undisclosed size to Chinese cold chain operator CJ Rokin Logistics.
This is a co-investment alongside FountainVest Partners, which agreed to acquire an approximately 73% stake in the business from its Korea-based parent for about $660 million in February. OMERS declined to comment on details but has described the deal as a play on two of its core China themes: rising consumerism and the transition to a services-led economy.
“We’ve actually been more active since COVID-19 occurred, especially in China, which recovered in a big way in the second half of last year. We’re seeing a lot of co-investment deal flow there through GPs we have an active dialog with, and the pipeline is strong,” says Jeffrey French, OMERS’ head of private equity in Asia.
Rokin is considered a leading player in the cold chain segment locally, with operations encompassing 5,000 employees, 740,000 square meters of warehousing space, and access to more than 60,000 vehicles. This is familiar territory for OMERS, a shareholder in Kenan Advantage Group, North America’s largest tank truck transporter. OMERS’ real estate arm Oxford Properties has also made several investments in logistics, including leading Chinese warehousing player ESR.
Doubling up
OMERS aims to write equity checks of C$400-800 million ($330-$660 million) in direct and co-invest deals, but in Asia, it can go as low as $100 million. The firm has about $15 billion in private equity globally, 10% of which is in Asia. That exposure is planned to double over the next 4-5 years.
“In the last 12 months, we’ve seen a lot of the private equity portfolio in China exiting to public markets, so we feel good about the liquidity,” French adds. “The scale and speed of China’s rebound from a global pandemic gives us a lot of comfort around the near and medium-term investment outlook.”
This confidence goes all the way to headquarters in Toronto. Top-level buy-in for an Asian push post-pandemic includes approval for a move into a larger Singapore office to accommodate a doubling of the regional team. Buyout and M&A experience will be the biggest staffing priorities.
In Singapore, there are currently three dedicated PE investment professionals, including French, who was with The Blackstone Group for six years until 2019, and Derek Ng, previously of Baring Private Equity Asia. They are supported by four Singapore-based associates and more peripherally by OMERS’ existing Asian infrastructure team in Singapore and Sydney, as well as several global colleagues.
French describes the Asia plan as a “crawl-walk-run” progression, where initial LP commitments are hoped to lead to more extensive co-investment with both portfolio and non-portfolio GPs before eventually evolving into a predominantly independent directs strategy. In this light, the Rokin deal represents a significant but still preliminary milestone.
Funds represent 90% of activity in Asia versus co-invest and directs to date. While that ratio is expected to reverse, the timing remains an open question. It remains to be seen whether the post-lockdown momentum now being leveraged in China can be parlayed into other target markets. North Asia, Southeast Asia, India, and Australia are all of interest to varying degrees.
“Our first direct deals in Asia are going to be situation specific and will really need to tick all the boxes. We’re not rushing to get something done,” French says. “It’s about making sure that we find the right deal with all the right parameters in place. Also, the fund and co-investment model makes a lot of sense in the near term due to travel restrictions. Partnering with GPs helps us cover regions that we can’t physically access right now.”
Emphasis on alignment
Before launching the Singapore office, OMERS’ most recent private equity commitments in the region came in 2007, when it backed an early fund-of-funds from Asia Alternatives and Baring’s fourth flagship vehicle. On a global basis as well, the pension plan has long since moved away from funds, leaving it with immaterial exposure to the strategy and little to leverage in terms of a GP network. The Asia funds program therefore essentially had to start from scratch.
OMERS currently has 10 country and pan-regional GP relationships in Asia, primarily backing funds well in excess of $1 billion. Check sizes are usually in the $150-200 million range. There is a strong preference for buyout strategies and investments in mature companies that can benefit from operational support. Consumer, healthcare, and technology are high on the menu.
“These will not just be one-time partners – we’re trying to develop long term, deep relationships with a small group of likeminded GPs we can co-invest alongside, even if the plan is eventually to move more into direct investing,” French says. “We want to adopt the same approach as some of the large sovereigns; they have the capability to lead deals themselves, but also have local GP partners as their eyes and ears on the ground.”
Much of the manager selection process is about confirming that investment philosophies are aligned, particularly in terms of value creation capacity. As a directs-focused investor globally, OMERS boasts significant internal operational resources, which can be brought to bear in Asia when needed. This is also expected in GP partnerships.
“There is a lot of dry powder in Asia, so companies don’t always end up being as cheap as you would hope. We can mitigate higher entry valuations through value creation, either by going direct and being hands-on or by partnering with GPs that know how to value create,” French says.
“While outsourcing of value creation work is possible, we prefer to work with GPs that have dedicated in-house operations teams to drive the process. Whether the team is large or small, it speaks to the DNA of a manager who understands how to execute complicated buyouts and who has resources a portfolio company can tap.”
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