Veterans of the Ontario Teachers' Pension Plan launched a private-equity fund on Thursday with plans to distinguish their firm from a crowded field by making long-term commitments to the businesses they buy.
The new fund, Peloton Capital Management, is founded by Steve Faraone and Mike Murray, both former managing directors in the private equity team at Teachers, a $194-billion fund with extensive private-equity holdings. Their initial backer is entrepreneur Stephen Smith, co-founder and chief executive of First National Financial Corp.
Mr. Smith committed a minimum of $150-million to Peloton and will be chairman of the fund. The three founders, all avid cyclists, expect to raise up to $600-million from institutional investors, including Canadian banks and family offices. The trio got to know each other in 2010, when Mr. Smith’s private company and Teachers teamed up to acquire Canada Guaranty Mortgage Insurance Co., which is now one of three dominant firms in its sector.
Peloton – a cycling term that reflects the teamwork involved in competitive bike racing – plans to differentiate itself from established private equity funds by targeting eight- to 12-year investments in companies, far longer than the three- to five-year timeline from initial investment to cashing out that is typical of private-equity investors. The fund plans to focus on investments in financial services, health care and consumer businesses.
In addition to the trio of founders, former Teachers CEO Jim Leech is joining Peloton as chairman of its advisory board. He retired from the pension fund in 2014 and has volunteered on a number of non-profit organizations over the past four years, including serving as Chancellor of Queen’s University. Peloton marks Mr. Leech’s first commercial venture.
Peloton plans to make $25-million to $75-million initial commitments to mid-sized, profitable companies, then back management’s growth plans. Mr. Murray said the fund is targeting investments in seven to 10 businesses.
“We believe there is a need in the North American PE middle-market for a long-term, sector-focused alternative,” Mr. Murray said. “While the fundraising market is competitive and there is a lot of capital chasing deals, the opportunity is significant.”
Peloton joins a growing list of private equity funds that are preaching a long-term approach to investment. Last month, the Caisse de dépôt et placement du Québec struck a US$3-billion alliance with Generation Investment Management LLP – a private-equity fund co-founded by former U.S. vice-president Al Gore – that aims to make investments that can be held as long as 15 years.
Veteran investor Larry Tanenbaum, co-owner of the NHL’s Toronto Maple Leafs and the NBA’s Raptors, opted to abandon the traditional private equity approach and stop accepting capital from outside investors in order to make multi-generational commitments to businesses acquired by his family-controlled company, the Kilmer Group. Mr. Tanenbaum led a group that recently acquired Coca-Cola Co.'s Canadian bottling and distribution business for an estimated $800-million.
Teachers began investing in private equity in 1991 and has held stakes in more than 500 companies. The team is currently led by senior managing director Jane Rowe, who promoted several professionals in the wake of Mr. Faraone’s and Mr. Murray’s departures this summer. Toronto-based Teachers has been the launch pad for other successful money managers. Former Teachers head of private equity Erol Uzumeri and two colleagues founded Searchlight Capital Partners in 2010.