Assembly of the Canadian LP Population – July 2014

by Harry Young

  • 29 Jul 2014
  • PE

Canada is continuing to gain prevalence in the private equity space, and going forward, it is likely to remain a focal point for global fund managers seeking capital. Preqin’s Investor Intelligence currently tracks 5,347 investors in the private equity asset class, of which 148 are based in Canada. 

Canada-based LPs currently manage aggregate assets of CAD 6.3tn, but it is their allocations to the private equity asset class that provides some particularly noteworthy statistics. The average current allocation to private equity of Canadian LPs (excluding fund of funds managers) is 8.4% of total assets - decidedly lower than the average allocation of the entire investor population tracked by Preqin, at 10.1%. The average target allocations, on the other hand, stand at 10.0% and 11.0% for Canadian and global LPs respectively. 

These figures reveal two points; firstly, the Canadian investor population currently allocates less, on average, to the asset class than the total body of private equity investors across all geographic regions. Secondly, it appears that there is greater discrepancy between the average current and target allocations of investors in Canada, than of all LPs tracked by Preqin. This may well suggest a faster rise in the average current allocation of LPs in Canada over the longer term, compared to the global base of investors. 

Public pension funds continue to dominate the investor make-up in Canada, accounting for more than a fifth (22%) of the LPs. This has, however, reduced since February 2013, when public pension funds accounted for 29% of the investors in Canada. Private sector pension funds account for the second highest proportion of Canadian investors in private equity at 16%, although similarly, this has marginally reduced from 17% last year. Given the fairly significant proportions of family offices (11%), foundations (8%), asset managers (7%) and insurance companies (5%), among others, as investors in private equity, it may be that we continue to see a more evenly spread make-up of investors by type, going forward. 

In terms of fund type preferences, more than half (51%) of the investors based in Canada have shown a preference for, or previously invested in, venture capital vehicles; while buyout vehicles are similarly popular given a figure of 45%. A recent example of a Canadian LP demonstrating an appetite for buyout vehicles is CPP Investment Board; it committed $119tn to JW Childs Equity Partners IV, a fund focusing exclusively on investment opportunities in the US. Preqin’s Investor Intelligence also shows that over a quarter (27%) of Canadian LPs have declared an interest for, or previously invested in, mezzanine vehicles. 

As we move through the second half of 2014, it seems that Canadian LPs will continue to provide a valuable source of capital for fund managers within the private equity space. Given also, the noted diversification of investors by fund type, perhaps we will see a rise of the less well-established investor types as they gain experience and knowledge over the medium and longer term.

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