(Bloomberg) — Private equity firms have been slow to liquidate their holdings and return money to investors. Executives at Ontario’s Investment Management Corp. say they’re ready if trends continue.
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“Most of our partners would probably say the worst is over. We’re just holding out,” said the chief executive of the C$77.4 billion ($57 billion) Canadian pension management company. said Rositsa Stoyanova, Head of Investments. “I’m prepared for there to be no exit for a while.”
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Overall, IMCO returned 5.6% last year, below the benchmark’s 6.6% return, according to Friday’s statement. The fund posted positive returns in all major asset classes except real estate, which fell 13%. It outperformed benchmarks in public equities and bonds, but underperformed in private equity.
“We weren’t expecting anything to happen in 2023 or being contrarian,” CEO Bart Clark said in an interview. “We stuck to our long-term strategy and it worked.”
IMCO is a relatively young organization, established less than a decade ago to consolidate the administration of numerous retirement benefits for public servants in Ontario, Canada’s most populous province. As such, the company is still building out some of its investment programs, including private equity and private credit.
Last year, the Toronto-based manager allocated C$509 million to three new private equity partners, including a European buyout fund managed by Cinven Capital and IK Investment Partners, for direct and joint investment. Closed C$1 billion in investment PE transactions.
The fund is also growing its credit business, investing in everything from investment grade credit to structured private credit through external fund managers and co-investments, including Ares Management, Carlyle Group and Blackstone. It also includes allocations to funds managed by .
IMCO ramped up its private credit business last year, bringing it to nearly 50% of its global credit portfolio as of December. Management plans to increase this to 70%, according to the fund’s annual report.
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Stoyanova said IMCO is also looking for exposure to infrastructure that supports energy transition and artificial intelligence. Last year, the fund invested $400 million in Swedish sustainable battery company Northvolt AB through convertible debt. and invested $150 million in cloud computing company CoreWeave.
Imco is selling some of its infrastructure fund shares on the secondary market and may do the same with private equity funds in the future “to make room for direct investments or to commit to the next vintage of fund managers.” That’s possible, Stoyanova said.
Office buildings and retail assets accounted for 53% of Imco’s real estate holdings as of Dec. 31, with a heavy tilt toward Canada.
Stoyanova said IMCO took over most of the real estate portfolio from the pension fund that took control several years ago and is diversifying into real estate in Europe and the United States. Last year, pension funds disposed of about C$1 billion in Canadian real estate assets. “Obviously, in order to change that, we have to dispose of assets to get dry powder to buy new ones,” she said.
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(Updated graph outlining returns by asset class.)
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