(Fixed) Would you join a Canadian pension funds direct equity team when already at a traditional PE shop

Hi all,

Had an infinite loop in my previous post and couldn't access it anymore.
If the moderator could delete the previous topic and post the comments here that would be awesome (thx)

I have an interview coming up with a large Canadian pension fund for their direct private equity team (standalone + co-investments). The position is not in Canada, but in NY. I am still a bit hesitant whether it is the right career move, as im a currently an associate at a mid-market 1bn PE fund, where i have good career prospects (but pay and performance is mediocre).

The way I see it currently:
Pros:
- Permanent capital base
- Small international team, globally spread
- Larger equity tickets ($100 to 750m)
- Good access to deal flow
- Ability to do co-investment with top LPs, meaning that you can learn a lot
- Seem to be the new kids on the block in direct PE

Cons:
- Political
- Bureaucratic/static?
- Reputation?

Questions outstanding:
- Pay? Do they have carried interest? I doubt it? Maybe another LT incentive scheme?

So albeit it looks like a nice opportunity, however with not having a clear view on compensation it is hard to judge.

I wonder what you guys think? Would you proceed with the opportunity and invest time in interviewing?
Any idea on compensation evolution? Additional pros/cons?

Thanks you very much!

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Comments (7)

Best Response
Jul 14, 2015 - 2:15pm

For OMERS or TPC, it could be interesting depending on your fit with the team. These 2 have built full direct team where they do deals on their own without relying on co-invest. OMERS has carry.

I wouldn't touch any of the others. It seems like you're talking about CPP, i would really advice to stay away. not the sharpest of people, you'll only do co-invest and abysmal exit opportunities

Jul 14, 2015 - 3:06pm

Would you join a Canadian pension fund's direct equity team when already at a traditional PE shop (Originally Posted: 07/09/2015)

Hi all,

I have an interview coming up with a large Canadian pension fund for their direct private equity team (standalone + co-investments). The position is not in Canada, but in NY. I am still a bit hesitant whether it is the right career move, as I am already an associate at a mid-market 1bn PE fund.

The way I see it currently:
Pros:
- Permanent capital base
- Small international team, globally spread
- Larger equity tickets ($100 to 750m)
- Good access to deal flow
- Ability to do co-investment with top LPs, meaning that you can learn a lot
- Seem to be the new kids on the block in direct PE
- People in the team have background at top/elite shops

Cons:
- Political
- Bureaucratic/static?
- Reputation?

Questions outstanding:
- Pay? Do they have carried interest? I doubt it? Maybe another LT incentive scheme?

So albeit it looks like a nice opportunity, however with not having a clear view on compensation it is hard to judge.

I wonder what you guys think? Would you proceed with the opportunity and invest time in interviewing?
Any idea on compensation evolution? Additional pros/cons?

Thanks you very much!

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Jul 14, 2015 - 3:08pm

No idea about comp / culture, although I can imagine that it is slightly lower comp for better work/life balance. With respect to the other points:

(i) Co-investments / Direct PE is an industry trend with tremendous growth potential - LPs want to decrease fees paid to PE GPs, which is why currently many LPs start to invest directly. Currently, GPs are able to incentivize their investors to maintain their committment levels for new funds by offering additional co-investment opportunities to enable them to dilute fee levels (as the LPs not pay fees on the equity they injected themselves). I see this, however, only as a temporary mitigant, as more and more LPs will wonder why they make use of an external investment manager in the first place.
Given the above I think it is very attractive to join a growing "subsector" that has the potential to disrupt the entire industry within the next years/decades

(ii) Direct investment groups at LPs do not have to worry about fundraising, which imho is the least fun part within PE responsibilities - only marketing & distraction from deal making

(iii) The largest LBO 2015 so far (USD5.3bn) has been done by a 50/50 investment between CPPIB (LP) & Permira - I guess the equity ticket was larger than the total fund size of the fund you're currently at

(iv) CPPIB is expanding tremendously at the moment, searching for more people across all hierarchy levels (analyst - principal; at least in London); not a bad sign

(v) If you want to switch back to a "traditional" GP at a later stage, you have quite a unique added value as you have very good contacts to the LP side (as fundraising / network becomes more important at senior levels)

Hope this helps somehow - statements come from (i) industry reports (ii) feedback from senior people at various PE funds I spoke with (in Europe), as I recently have asked myself the same questions with respect to a similar situation you are in (in London though).

Cheers

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