The Canada Pension Plan Investment Board and the Caisse de dépôt et placement du Québec have earmarked a combined $500 million for mid-market private equity investments through Northleaf Capital Partners.
The funds are part of a total of $1 billion raised in the past couple of months from institutional and other high net worth investors in Canada, Europe and Asia by Northleaf, a private market investment firm that was spun out of Toronto-Dominion Bank 10 years ago.
The funds are to be invested through Northleaf’s private equity, infrastructure and private credit programs that target the mid-market, with the emphasis on private equity and infrastructure.
Institutional investors such as pension funds tap Northleaf’s investment programs for exposure to the mid-market, while their internal deal teams tend to focus on larger transactions.
“It helps them efficiently scale down,” said Stuart Waugh, Northleaf’s managing partner.
He declined to say what portion of the half-billion dollars earmarked for private equity in the most recent capital raise came from each of the two Canadian pension giants, but the funds will be invested under separate mandates. Northleaf has been investing in the mid-market for CPPIB since 2006, and the pension fund committed a further $330 million to private equity investments in 2015, according to a news release at the time. The Caisse first allocated funds to Northleaf in 2014.
In the decade since the spinoff from TD in 2009, Northleaf’s total commitments under management have increased by more than five times to US$13 billion, and the firm has more than 350 active investments in 34 countries.
“It wasn’t obvious in the depth of the financial crisis what the long-term outcome would be,” Waugh said in an interview with the Financial Post, noting that his firm has also since expanded from two offices, in Toronto and London, to include beachheads in New York; Chicago; Menlo Park, Calif.; Melbourne and Montreal. The staff of 35 has grown to more than 140.
CPPIB, which placed its first investment through Northleaf in 2006 when it was still a unit within TD, committed more funds in 2010 as well as 2015. With the latest commitment, Northleaf forged an “evergreen” fund structure with Canada’s largest pension fund, which means proceeds from private equity transactions will be rolled into future investments rather than returned when assets are sold, Waugh said.
The Caisse, which first invested through Northleaf in 2014, “re-upped and expanded” the program this time, Waugh said, noting that the Quebec pension’s funds are directed towards secondary investments in private equity, which are made part way through the cycle of a typical private equity investment. This means the hold period for investors tends to be shorter than the traditional five- to seven-year arrangement, he explained.
In addition to secondary market transactions, Northleaf’s private equity investments take the form of direct minority investments, co-investments and fund investments.
Northleaf also manages three Canada-focused venture capital funds, the latest of which is part of the federal government’s Venture Capital Catalyst Initiative. That fund, Northleaf Venture Catalyst Fund II, reached a previously established cap of $300 million in June, with funds raised from investors including CPPIB, Sun Life, TD Bank, Manulife, BMO Capital Partners, and the investment arm of the Business Development Bank of Canada (BDC).
Northleaf’s venture capital funds have made investments in companies including story-telling platform Wattpad and software firms Top Hat and Verafin. Previously realized investments include Shopify, BlueCat Networks and health and safety software firm Cority.