By Francesca Venir, Francesca Martino, Giovanni Di Girolamo
Introduction
In a significant development in the world of Private Equity, the global Private Investment house Adrian has acquired a substantial $2.1bn portfolio of limited partnership interests in 20 PE funds from the Canada Pension Plan Investment Board (CPP Investments). This transaction highlights the evolving landscape of Asset Management and strategic portfolio optimization. As the head of secondaries at CPP Investments, Dushy Sivanithy, pointed out, the market has undoubtedly experienced significant improvement across various aspects over the past months. Specifically, the bid-ask spread was exceptionally wide in 2022, leading to a decrease in transaction volumes. However, as the year went on, this spread has considerably narrowed, resulting in a notable surge in the number of sellers participating in the market.
The Players
Ardian is a world-leading Private Investment house from France, managing or advising $156bn in assets on behalf of more than 1,470 clients globally. Its extensive expertise spans Private Equity, Real Assets, and Credit, allowing the firm to offer diverse investment opportunities tailored to its clients’ unique needs. Ardian’s commitment to responsible investment and ethical standards is underlined by its goal to make finance a force for good in society.
Its counterparty in this transaction, CCP Investments, is a professional investment management organization that manages assets in the best interests of over 21m contributors and beneficiaries of the Canada Pension Plan. Based in Toronto, and with additional offices worldwide, CPP Investments operates autonomously from the Canada Pension Plan and distances itself from government entities. CPP Investments’ diversified portfolio includes investments in Public Equities, Private Equities, Real Estate, Infrastructure, And Fixed Income. Transparency and accountability are central to CPP Investments’ practices, consistently ranking among the top global funds in these aspects. In the last five years, CPP Investments has entered a total of seven secondary deals of different magnitudes (ranging from CA$25m to CA$1bn).
The Acquisition and its Rationale
Ardian’s acquisition of the $2.1bn portfolio from CPP Investments represents a strategic move in line with their secondary fund’s strategy. The aim of the Private Investment house is to provide active portfolio management solutions to institutions looking to rebalance their investment portfolios and monetize Private Equity holdings. This portfolio comprises limited partnership interests in a mix of North American and European buyout funds, showcasing its diversification. The portfolio is a collection of different investments that CPP Investments has made over a period of around two decades. A total of around 20 to 30 investors initially examined the deal, with Jefferies leading the process. The portfolio underwent two rounds of competitive auctions, wherein some participants in the first round only placed bids on a portion of the portfolio.
Portfolio Diversification and Expertise: The acquisition aligns with Ardian’s strategy to diversify its portfolio further, mitigating risk by adding a variety of assets. Additionally, Ardian brings its extensive expertise in alternative investments to manage these assets effectively.
Strategic Growth: With over $156bn under management or advisement, Ardian’s acquisition continues to demonstrate its position as a global leader in the secondary Private Equity market. In fact, Ardian holds the distinction of possessing the most extensive platform for Secondary & Primary PEs globally. This deal reflects the firm’s commitment to growth and its ability to offer tailored solutions to institutional clients. In consonance with a previous acquisition (the Britain’s Universities Superannuation Scheme), Adrian looks to decrease its number of relationships with General Partners (GPs) as part of a strategic shift. This realignment prioritized their core relationships by sourcing better access to direct investments and co-investments.
Furthermore, acquiring stakes in high-quality Private Equity and infrastructure funds from institutional investors has the aim of providing Adrian liquidity solutions before the underlying funds reach maturity. Mark Benedetti, Co-Head of Ardian US, emphasized the importance of this acquisition in the context of industry trends: “This latest acquisition comes at a significant time for the industry where many LPs continue to address the denominator effect and are looking for portfolio management opportunities like this to open up capital for future commitments.”
Capital Allocation and Future Commitments: Conversely, this sale allows CCP Investments to optimize its overall portfolio construction. By unlocking capital, CPP Investments can allocate resources more efficiently to support future investments, enhancing its overall investment strategy. Suyi Kim, Senior Managing Director and Global Head of Private Equity at CPP Investments, highlighted the strategic rationale behind the sale: “We see this sale as an attractive opportunity to optimize the construction of our portfolio and to allow us to further support future investments.”
CPP Investments is oriented to build a well-balanced and globally diversified portfolio with the goal of maximizing sustainable long-term returns without taking unnecessary risks. The portfolio, which is structured to be resilient to wide-ranging market and economic scenarios, covers all major asset classes, mitigates significant risk factors, and encompasses multiple distinct investment strategies.
The anticipation is that the secondaries market will continue to experience greater flexibility in the upcoming months. This is due to the increasing number of investors entering the market, specifically pension plans, that have allocated an excessive amount of their funds to PE. These pension plans are now seeking to unload some of their assets – allowing the pursuit of new investment opportunities. With interest rates on the rise and debt funding becoming more expensive, it became more convenient to exit from investments where the values are quite stable, such as Private Equity.
Conclusion
Ardian’s acquisition of the $2.1bn portfolio from CPP Investments reflects the dynamic nature of the financial industry, where these institutions seek to optimize their portfolios and access expert portfolio management solutions. This transaction aligns with Ardian’s growth strategy and highlights its ability to provide customized investment solutions to institutions worldwide. It also reaffirms CPP Investments’ commitment to prudent portfolio management and capital allocation to support future investment opportunities. This strategic move by both organizations exemplifies the evolving landscape of Private Equity and alternative investments.
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