Private equity activity and job opportunities took a beating in the crisis, and may never regain their former heft. But a new market for PE investing skills may develop among public pension funds.
BusinessWeek details the Ontario Teachers' Pension Plan's direct PE investing program, suggesting it's on the way to being a model for other public pension funds that would make private investments on their own instead of going through PE funds. Aided by unbroken, automatic cash inflows and not having to rely on leverage, Ontario Teachers kept buying stakes through the downturn. It's made 300 such investments since inception in 1990 and the PE portfolio has returned 19.6 percent a year - in line with top PE firms, according to BusinessWeek. One recent marquee deal: AIG's Canadian mortgage business, announced Jan. 5.
"Even when other private equity firms were on the sidelines, we were there," Jim Leech, chief executive of the $83 billion fund, told the magazine.
Other pension funds are beginning to invest on their own, the article notes. The Canada Pension Plan Investment Board, which partnered with Ontario Teachers on at least one deal, operates "more like Goldman Sachs Asset Management" than a pension fund, says its PE group head (who previously worked at Ontario Teachers). Another public pension fund that makes direct investments in private companies is ABP, part of the Dutch civil service system.
In the U.S. direct PE investing and other forms of disintermediation could get a boost from investigations of pay-to-play scandals where outside fund managers made campaign contributions or outright bribes to gain access to assets controlled by public officials.
The Pension Fund Beating Private Equity [BusinessWeek]
Wall Street Bonuses Get 17 Percent Bounce [WSJ]
Wells Fargo Aims for Top Ranks of U.S. Equity Offering Business [BusinessWeek]
HSBC Said to Scrap Plans for CEO Pay Rise After Investors Balk [Bloomberg News]
Inside the Crisis at AIG [Fortune]
Former Lehman CFO Callan 'Retiring' from Wall Street [Fox Business]
Something to Say: When And How to Say It [HR Bartender]