CPPIB increases co-investments, fund check sizes in Asia
Canada Pension Plan Investment Board (CPPIB) closed a record nine direct private equity deals in Asia during the 2019 financial year, while writing down one of its largest existing co-investments in the region.
The pension plan committed C$3.8 billion ($2.8 billion) to new investments in the 12 months ended March. Of this, C$3 billion went to funds - including its largest-ever equity check for an Asian manager - and C$800 million to direct investments made alongside managers.
CPPIB said the write-down was for a direct investment in Korea. AVCJ understands the company is Homeplus, a supermarket retailer that an MBK Partners-led consortium acquired from Tesco for $6.4 billion in 2015. CPPIB contributed $534 million in equity to the deal. In March, Homeplus abandoned plans for the IPO of a real estate investment trust comprising stores that were to be leased back.
The write-down pared back strong valuation gains elsewhere, notably from China-based investments. This - combined with larger distributions than in 2018 - meant that the increase in the carrying value of CPPIB's Asia portfolio was relatively modest. It rose by C$1.2 billion, compared to C$3.7 billion the previous year.
As of March, the value was C$13.6 billion, of which C$8.2 billion was in funds, C$5 billion in direct deals, and $400 million in secondaries.
Baring Private Equity Asia received a $500 million commitment for its seventh pan-regional buyout fund, bettering the previous high of $450 million for MBK’s fourth vehicle in 2017. This was one of nine allocations to Asia-based managers over the 12-month period. A total of 66 opportunities were reviewed.
Other commitments categorized under the 2018 vintage include: $300 million for Hillhouse Fund IV; $260 million for CITIC Capital China Partners IV; $200 million for Australia and New Zealand-focused BGH Capital Offshore I; $380 million for PAG Asia III, and $275 million for Bain Capital Asia Fund IV.
CPPIB also went into three growth funds launched by Sequoia Capital, among them the firm’s fifth China growth fund and its third global growth fund. Both vehicles participate in mid to late-stage tech deals in China. It appears to represent the pension plan’s first dedicated exposure to the technology space in emerging markets.
The C$800 million for Asia direct investments compares to C$1.6 billion across six deals in the 12 months to March 2018. Only one is disclosed in the annual report: Indian online education start-up Byju’s. CPPIB took part in a $400 million funding round led by Naspers in December 2018 at a valuation of approximately $4 billion.
Other direct transactions highlighted on the pension plan’s website do not specify the financial year in which they closed. And yet more are not classified as private equity at all, such as CPPIB’s $600 million contribution to Ant Financial’s $14 billion Series C round, which was the work of the fundamental equities and thematic investing teams.
PE deals listed as happening in 2018 include: Anchor Equity Partners’ spin-out of Korean coffee shop chain A Twosome Place; CITIC Capital and FountainVest Partners’ carve-out of Chinese pallet business China Merchants Loscam; a funding round for Du Xiao Man, Baidu’s financial services unit, led by TPG Capital and The Carlyle Group; Chinese news aggregation and short video platform Beijing Bytedance Technology; and real estate agency Homelink.
Korean industrial waste treatment business Eco Green Holdings, PAG’s acquisition of Shanghai Baosteel Gases – CPPIB also supported the private equity firm’s purchase of Yingde Gases in 2017 – and China-based Jinxin Fertility are listed as 2019 deals. The latter company filed for a Hong Kong IPO in February.
CPPIB’s overall assets stood at C$392 billion as of March 2019, a gain of C$32 billion on the previous year. The pension plan had C$93.1 billion in private equity, or 23.7%. The net nominal rate of return for the 2019 financial year was 8.9%, down from 11.5% in 2018.
CPPIB writes checks of at least $75 million for funds of $500 million and above in Asia. It can go as low as $25 million for co-investments, although the minimum is set at $150 million for co-sponsorship deals. For secondaries, acquisitions of LP interests start at $25 million, while direct secondaries start at $100 million.
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