Hey Canada, can you spare $15.7 billion?

$15.7 billion sounds like a lot of “scratch”, as a pro golfer might say. Is that the annual budget for some Provinces and States? Perhaps. In this context, we’re talking the unfunded liability currently being carried by the CPP Investment Board’s private equity program.

The CPPIB fund is sitting on assets of $123.8 billion, and 26.8% of that sum is currently committed to our private equity program (see prior post “Doubling Down on Private Equity at CPP Investment Board” February 20-09). Here are some CPPIB PE stats to noodle:

Capital committed to private equity funds: $32.66 billion
Capital called to date by fund managers: $16.98 billion
Carrying value of PE capital called to date: $17.92 billion
Capital still to be called by funds: $15.68 billion

Nine months ago (using 9/08 data), this is how it looked:

Capital committed: $28.9 billion (26.5% of CPPIB’s Dec/08 AUM)
Capital called to date: $14 billion
Carrying value of capital called to date: $17.1 billion
Capital still to be called: $14.8 billion

If you’re wondering about the impact the global financial crisis has had on CPPIB’s PE program, consider this:

Between September 2008 and June 2009, PE managers called about $3 billion of capital to fund transactions and fees (~$490MM covered 9 months of mgmt. fees). Drawn capital grew from $14 billion to $16.98 billion over the nine month period, yet the carrying value grew from $17.1 billion to just $17.98 billion. About $2 billion in value was “lost” during the nine month period.

Of note, since the CPPIB starting making PE investments in 2000, they’ve earned about $934MM on invested capital of $16.98 billion — which represents a 5% simple return for the decade (a majority of the program’s capital was committed between 2006-08, when about $18.8 billion was locked into primarily large and mega buyout funds).

I’m not suggesting for a moment that you should worry about $2 billion of value lost over a nine month period. The quarterly mark-to-market swings within PE portfolios over the past nine months were understandably large. The irony of applying GAAP fair market value accounting to the buyout world means, simply, that private investments will swing with the public market indicies. Far more correlated to the public investing world than private equity was, in theory, supposed to be.

In the meantime, we can keep our eyes on these figures. Since 2000, CPPIB’s PE program has returned distributions of $7.6 billion to the fund. For the program to reach “self-funding” status, CPPIB’s existing PE program needs to generate another $16 billion of cash over the next few years.

Otherwise, a big chunk of our weekly payroll contributions will have to be steered this way to cover the ongoing PE capital calls (see prior post “PE consumed 61% of CPPIB quarterly payroll contributions in Q4“).

MRM