CPPIB’s 25% Private Equity concentration

As the Yale and Havard Endowments yank back on their private equity exposure, Canada’s CPP Investment Board has a full 25% of its $123.9 billion in assets exposed to the sector.

Here’s the skinny:

Paid in Capital: $16.509 billion
Reported Value plus Distributions: $17.956 billion
Capital Calls still to fund: $14.562 billion
Total Committed: $31.072 billion

One of the difficulties in analyzing the success that CPPIB has enjoyed in the space is the question of currency. As at December 31, 2008, the Euro was trading at 1.705, and the USD was at 1.225. Fast forward to September 30, 2009, and the Euro fell to 1.5686 and the USD was down to 1.0722. Every unhedged LP investment in 90% of CPPIB’s private equity program lost value, all other things being equal. And, as easy as hedging sounds, hedging each capital call would be an unusual approach to the asset class.

Nine months ago, the program looked like this as at Dec. 31, 2008:

Paid in Capital: $16.8 billion
Reported Value plus Distributions: $18.119 billion
Capital Calls still to fund: $16.77 billion
Total Committed: $33.61 billion

Amazing, the program’s exposure and the value of the investments shrank during 2009 solely due to the drop in foreign currencies. Obviously, that’s not a useful way to look at a long term investment strategy, but in the world of mark-to-market, those are the stats.

If you transposed the Sept. currency values for the Dec. 2008 actuals, here’s what it looks like:

Paid in Capital: $15.15 billion
Reported Value plus Distributions: $16.28 billion
Capital Calls still to fund: $15.04 billion
Total invested and committed: $30.193 billion

Under this approach:

- CPPIB LPs drew about $1.4 billion for new investments and management fees during the 9 month period
- the value of the portfolio’s investments on a mark-to-market basis grew $1.2 billion
- $455 million of distributions were received (which funded a decent chunk of the $1.4 billion drawn by other LPs)

On this basis, things sound as though they rebounded just fine during the end of the world financial crisis. Only question that remains is: was it wise to commit $25.4 billion to private equity during 2005-09…the “Golden Era” of Private Equity”?

$10.8 billion of cash has been drawn by GPs from that vintage, and the carrying value of that subset is currently $9.385 billion; down almost 15%. It’s early, but it’s becoming a large hill to climb.

MRM