News

Canada's biggest pension funds are putting their cash to work at a time when most private equity rivals are on the sidelines, with the Canada Pension Plan Investment Board committing to deals totalling $10-billion for a U.S. health care company and an Australian toll road operator.

The CPPIB teamed with the Ontario Teachers' Pension Plan Thursday to make a hostile $6.5-billion offer for Transurban Group, which has stakes in six highways in Australia and two U.S. roads. While Transurban's board rejected the overture, the two sides are now in talks. The pension funds already own 25 per cent of Transurban.

The move is the latest in a series of takeover bids for Australian assets by Canadian investment funds and public companies. CPPIB paid $1.5-billion this year for Macquarie Communications Infrastructure Group, a communications network company, and Brookfield Asset Management is in the midst of a $1.1-billion (U.S.) rescue of debt-heavy Babcock & Brown Infrastructure – and two years ago made a major deal for an Australian property firm.

What's the appeal of shopping Down Under? It's about politics and regulation – and about Australia's more liberal attitude toward private money in infrastructure and utilities.

“Australia and the U.K. have featured the most attractive infrastructure opportunities for the past two decades … Western Europe and North America rank well behind,” said Mark Wiseman, senior vice-president and head of private equity at CPPIB. The $116-billion (Canadian) fund has 4 per cent of its holdings in infrastructure plays, and another 12 per cent of assets in private equity.

Separately, CPPIB joined forces Thursday with TPG Group, a $45-billion fund (U.S.) that owns a number of health care companies, in a $4-billion bid for IMS Health, which provides information services to the pharmaceutical industry. Mr. Wiseman described the Norwalk, Conn.-based company as a “defensive investment,” as IMS enjoys strong customer loyalty and dependable revenues and profits.

These deals are coming at a time when most private equity funds are stuck in neutral, still dealing with the fallout of the credit crisis and recession. Most funds are unable to borrow the cash needed to do large transactions on the easy, cheap terms available during the buyout boom that ended in 2007. Canada's major pension plans, with their long investment horizons and deep pockets, are taking advantage of that.

“We are uniquely positioned right now. We are among the few institutions in the world with the capability and the resources to take on complex, large private-equity transactions,” said Mr. Wiseman, who added that the fund is “choosing its spots very carefully.”

In recent months, the Toronto-based fund backed a $1.9-billion purchase of a stake in Internet phone service Skype Technologies SA and a $273-million (Canadian) all-cash bid for customs brokerage Livingston International Income Fund. That takeover was challenged Thursday when Mullen Group Ltd. made an all-stock offer for Livingston worth $300-million.

Over the past decade, CPPIB and the other large, public sector Canadian pension plans built in-house expertise in private equity and infrastructure – Mr. Wiseman's group has 100 professionals. The funds also committed substantial capital to the sector, on the theory that over time, private holdings will generate superior returns with lower risks than public market investments.

CPPIB invests money that the government-run Canada Pension Plan does not need to pay current benefits. Teachers is an $88-billion fund that provides retirement income for Ontario's 284,000 active and retired teachers.