TORONTO |
(Reuters) - When he left behind his first career as a high school math teacher, David Denison wanted to put his love of numbers to work in the business world.
Thirty years later, after stints at some big Bay Street firms, the 58-year-old leads one of the world's top pension fund administrators, and the Canada Pension Plan Investment Board is growing fast.
"Part of it was a challenge to myself: being a successful teacher, could I be successful in a dramatically different environment, in business?" Denison told Reuters in an interview. "And I said, 'damn it, I will.'"
The CPPIB, which manages pension funds for 17 million Canadians, will double assets under management in a decade to C$275 billion ($264 billion) from C$130 billion at present.
By 2030, it expects assets to grow to C$400 billion -- about the gross domestic product of Chile and Columbia combined.
Denison says the board will target more direct investing as it grows, delving further into emerging markets and growing the private debt department it launched 18 months ago and which currently has C$2.2 billion invested.
"Credit markets are so difficult," Denison said at CPPIB's Toronto headquarters, where the work of Canadian artists hangs in hallways and boardrooms. "That is why it is an advantage for us to be deploying capital and private debt right now. We can get very attractive returns, very strong covenant packages, very good protections for ourselves."
The CPPIB emerged from the global economic crisis almost unscathed, with assets under management now above pre-crisis levels. It was one of the world's top private equity investors in 2009, helped by investment horizons that sometimes extend out over 75 years.
Deep pools of capital and these long-term outlooks have turned Canadian pension funds into new breed of financial investor. They can weather market turbulence without pressure to exit investments in a set period, and outmuscle buyout firms with fixed timelines for returns.
In at least five known deals so far this year, CPPIB has moved in sectors from car parts makers to toll road operators.
STAFF RISE TO 600 FROM 100 IN UNDER 5 YEARS
Denison says the pace and volume of the deals testifies to the diligence of staff, amid a hiring spurt to 600 from 100 in since 2006. More will join as more assets need to be managed.
"I think what people are seeing now is not by any means a sudden development, or an overnight development. It's been a very methodical, thoughtful evolutionary process of putting us in the position where we can execute a number of transactions and do them as you've seen simultaneously," he said.
Pundits ask what that means as the fund has to deploy mountains of new capital, but Denison says the CPPIB is well prepared to handle the growth.
He said the fund won't stray from a strategy that sees it invest new assets in equity and bond markets in a passive way until the right opportunity comes along in private markets, perhaps in infrastructure or real estate.
"We're not compelled if it goes to C$275 billion to have some fixed percentage in private markets," said Denison, who still has a professorial air about him despite a compensation package that brought him C$2.98 million for fiscal 2010.
"We're not thinking, 'Oh my Goodness! We have to all of a sudden increase our transaction size or even increase the pace.'"
Denison said of any 100 possible deals, eight or nine will be pursued and two or three might become investments, whether in private equity, real estate or infrastructure.
Asset managers are not pressured to stick to asset allocations or rewarded for taking risks, even if that means some opportunities get away.
"It's a very explicit statement to our investment teams," said Denison. "Success isn't doing a deal. Success is making a better investment for the fund than we already have through the public markets."
BIG DEALS
CPPIB was a partner on three of the five largest private equity deals of 2009, and just two of the deals it is working on this year would be worth some $8 billion if completed.
One is a $4.5 billion bid with Canadian private equity firm Onex Corp (OCX.TO) for car parts maker Tomkins Plc (TOMK.L), while CPPIB is also pursuing a C$3.5 billion deal to buy Australian toll-road operator Intoll Group (ITO.AX).
The board likes to partner on private equity deals and does not invest through funds in infrastructure deals.
In real estate, where CPPIB has closed major deals in Britain and the United States this year, Denison prefers to go in as a direct investor, but with a proven operating partner.
Denison won't discuss deals the fund is working on, but points at attractive opportunities in real estate in Australia, Britain and continental Europe, especially Germany and France.
Private equity could yield opportunities, and infrastructure is prized in Australia and Britain.
The fund also wants to boost its presence in emerging markets, especially China, India, Turkey, Mexico and Brazil.
($1=$1.05 Canadian)
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