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OMERS in move to reduce external managers

The Canadian pension’s goal is to shift its private equity portfolio to 80% direct investments from the current 35%. The pension has been a direct investor in infrastructure and real estate for many years through its Borealis Infrastructure and Oxford Properties direct investment teams.

The C$43 billion (€27.4 billion; $41 billion) Ontario Municipal Employees’ Retirement System has decided to make a big move into direct private equity investing and away from the use of externally managed funds.

The pension has also opened offices in New York and London to ratchet up its direct effort.

The pension’s goal is to have 80 percent of the private equity portfolio in direct investments, and 20 percent in external fund managers. Currently, OMERS’ private equity portfolio is 65 percent invested through fund managers and 35 percent through direct investments.

Paul Renaud

OMERS has no time frame for the shift to more private equity direct investments. The pension has about $4 billion invested in private equity, according to Paul Renaud, president and chief executive officer of OMERS Private Equity. The pension’s target allocation to private equity is 10 percent and its actual allocation is 8 percent.

The pension may look to exit some of its existing relationships with fund managers through the secondaries market, but only if attractive opportunities arise, Renaud said.

“OMERS very much believes in active management in terms of adding value to the investment process more so than passive management,” Renaud told sister website PrivateEquiyOnline in an interview Thursday. “We have the size, scale and resources we’ve been building up over time to build up a direct [investment] programme.”

OMERS has been investing directly in Canadian companies for several years, Renaud said, but has recently opened offices in New York and London to help with the expansion of the direct investment programme. The pension has also been a direct investor in infrastructure and real estate for many years through its Borealis Infrastrucure and Oxfort Properties direct investment teams.

OMERS moved Mike Graham from Canada to run the New York office, and hired Mark Redman, a former 3i

OMERS very much believes in active management in terms of adding value to the investment process more so than passive management.

Paul Renaud

executive, to run the UK site. The pension in July promoted its property head Michael Latimer to chief investment officer.

One of the benefits of a direct investment programme is not having to pay management fees or carried interest to an external manager, Renaud said.

But OMERS also has an advantage over other private equity firms, in that the pension doesn’t have a set investment period to hold its portfolio companies. “We’re not worried about a fixed term,” Renaud said.

OMERS is a generalist investor, not looking for any specific industry in the investment world. “We look for well-managed businesses that have talented management teams we feel we can work with,” he said.

Recently, Leo de Bever, head of the Alberta Investment Management Corporation, said the system was building a bigger in-house team of investment professionals to build up its direct investment programme.

Alberta will still look for investments through external managers, but will “take our time and not do anything stupid”, de Bever said. “We’ll be very pragmatic about who is likely to create value for us and minimise exposure to anyone else.”