The Canada Pension Plan Investment Board, which last year opened an office in San Francisco, is already investing in local top-tier funds as part of its newly minted venture capital program.
CPPIB, Canada’s largest pension fund with net assets of C$410 billion ($309 billion; €279 billion), has so far made commitments to three Silicon Valley managers, Delaney Brown, head of private equity funds, tells Venture Capital Journal.
Brown, who declined to identify the fund managers, adds that CPPIB has met with a “very favorable market reception” to the 2019 rollout of its VC strategy.
The fresh commitments follow others recently disclosed by CPPIB. They include a $50 million investment in the $350 million Fund II of AI-focused VC firm Radical Ventures, made early last year. CPPIB also in late 2018 put C$70 million to work in the C$300 million Northleaf Venture Catalyst Fund II, a fund of funds managed by Northleaf Capital Partners.
Taken together, the activity marks a swift ramping up of CPPIB’s strategy, which aims to deploy an initial $1 billion to funds in North America and Europe. The San Francisco presence is key, as it is intended to help the pension fund source investment opportunities and deepen relationships in the world’s leading innovation hub.
Brown played a major role in the VC initiative’s early development and implementation. He tells VCJ the goal is to concentrate capital in a select number of top-tier franchises able to deliver outperformance and give CPPIB diversification as well as exposure to top tech deals, startups and sectors.
CPPIB will also consider making commitments to several emerging managers with first- or second-time fund offerings, Brown says.
In choosing fund partners, the main focus will be on sectors where CPPIB has built a track record, such as enterprise software and other tech. Fund investments will generally range from C$10 million to C$100 million across early-stage and growth-stage vehicles.
While CPPIB will seek co-investment opportunities with VC firms, this is not a pre-requisite for committing capital, Brown says. Instead, the pension fund is primarily interested in tapping “insights and knowledge” from partnerships which can be used throughout its global organization, he says.
CPPIB views the VC strategy as a way of better understanding the impact of data and tech across its overall portfolio. “There have been recent huge strides in technology development,” Brown says. “Innovation is now playing a much more important role in business, no matter what business you’re in, and will continue to do so over the next 10 years.”
CPPIB invested in venture capital during the dot-com era. It has since kept a window on the market mostly by acquiring stakes in a few late-stage unicorns. By launching a funds-focused initiative, Brown says, CPPIB hopes to gain a “fuller exposure” to tech trends through “meaningful investments earlier in the life cycle.”
Crawl – walk – run
Brown says CPPIB’s VC strategy is looking to “replicate the strong returns” of its other tech PE investing, which has greatly expanded of late.
CPPIB’s PE platform, valued at C$99 billion as of September 30, 2019, is rooted in partnerships with large and mid-market buyout and growth equity managers in the Americas and Europe. Over the past five to six years, several tech PE firms have been added to the roster, among them Accel-KKR, Insight Partners, Riverwood Capital Partners, Siris Partners, Thoma Bravo and Vista Equity Partners.
More tech PE relationships have led to more direct investments and co-investments by CPPIB. In 2019, CPPIB participated in at least seven major tech deals. They include the acquisition of human capital management system Ultimate Software, conducted alongside Hellman & Freedman, and an investment in 3D development solutions provider Unity Technologies, which is backed by Sequoia Capital and Silver Lake.
The VC program is expected to follow a similar path over time, Brown says, providing potential new opportunities for direct investing. CPPIB must first increase its familiarity with the space, however, and obtain more experience with early-stage tech companies, he adds. Brown calls this evolutionary approach to the strategy “crawl – walk – run.”
CPPIB enters the North American VC fundraising market in a period of robust activity. In the US industry, VC firms in 2018 set an 18-year record, securing commitments of more than $50 billion, VCJ reported, citing Refinitiv data. In 2019, the amount raised by funds passed the $50 billion mark as of mid-November.
CPPIB recognizes “a lot of capital is coming into the market,” says Brown, who notes that much of the US activity is led by large managers which are also driving key investment trends. CPPIB is positioned to “ride through” cyclical highs and lows, he says, because it takes a long-term view of VC, as it does all private asset classes.
‘Recruiting as we speak’
At present, a top priority of CPPIB’s VC strategy is setting up shop in San Francisco and bringing on senior- and junior-level personnel. “We’re recruiting as we speak,” Brown says.
VCJ in September reported CPPIB hired Monica Adractas, formerly the global director of Facebook’s business collaboration app Workplace, as head of venture capital funds. Operating from San Francisco, Adractas will focus on further advancing the strategy, identifying potential fund partners, and making and managing commitments.
Brown says Adractas was the right pick for the job due to her long career in innovation, half of which was spent as an operator.
Before Facebook, Adractas held executive roles at Box, a cloud content manager, as well as McKinsey and Starbucks’ new ventures program. She also founded One Shared Mind Ventures, an investing and advisory firm for tech or tech-enabled companies in enterprise applications and consumer spaces.
As a result of this background, Adractas is “embedded in the tech ecosystem,” Brown says. This makes her a “complementary fit” with CPPIB’s investment professionals, he adds.
Adractas is part of a West Coast contingent that for the moment consists of 10 people. Over the next 24 months, the size of the team is expected to increase, partly through transfers of existing employees from CPPIB’s direct PE, PE funds, thematic investing and portfolio value creation groups.
CPPIB in November announced the appointment of Ryan Selwood, head of direct private equity, as San Francisco’s interim senior lead. The position is a temporary one, Brown says, intended to help establish the office. Other team members include Austin Locke, a recently promoted senior principal focused on direct tech PE investing.
Along with San Francisco, other CPPIB locations will house capabilities essential to the success of the VC initiative, Brown says. They include London, New York and the pension fund’s Toronto headquarters.
Born in Cambridgeshire, UK, Brown was a research scientist with GlaxoSmithKline prior to opting for a career in PE. He joined CPPIB in 2013 from Hermes GPE, where for eight years he was head of the Americas. Before then, he was an associate director with Almeida Capital.
London-based Brown was in 2018 named by Financial Times as one of the 50 most influential people in European private equity.
VC’s Canadian pension power
CPPIB is among several large Canadian pension funds that are starting up or expanding VC programs.
The others include the C$201 billion Ontario Teachers’ Pension Plan, which in 2019 unveiled its Teachers’ Innovation Platform to make late-stage VC and growth equity investments in tech companies. TIP closed its first deal in June, investing in Elon Musk’s space launch provider SpaceX.
The C$327 billion Caisse de dépôt et placement du Québec and C$97 billion Ontario Municipal Employees Retirement System recently stepped up their VC activity.
Similar to CPPIB, OMERS Ventures last year opened an office in Silicon Valley, headed by Michael Yang, formerly of Comcast Ventures. The move, part of OMERS Ventures’ plan to establish a global platform, was several months later followed by creation of a new London office and a $342 million fund for investing in leading European tech hubs.