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Institutional Investor Profile: Pierre Fortier, Vice President, Funds, Private Equity, Caisse de dépôt et placement du Québec22/03/2006. Source: AltAssets. 
Pierre Fortier on the Caisse de dépôt et placement du Québec's private equity investment strategy, the need for being highly selective when picking funds and on the firm's strategic partnership with AXA Private Equity.  Québec's Caisse de dépôt, established in 1965, actively manages funds on behalf of its depositors, primarily public and private pension and insurance plans. It has six investment groups: private equity, equity markets, fixed income, absolute return, real estate, and investment analysis and optimisation. The firm started investing in private equity at the beginning of the 1980s and did its first investments in funds in 1987.
Caisse de dépôt's private equity group currently manages a total of CA$13.1 billion. Between 22 and 25 per cent of our portfolio are fund investments, with the remainder being direct investments, co-investments and infrastructure investments. The largest portion of that, just over 50 per cent, is invested in direct investment.
In 2005 the Caisse de dépôt authorized a total of CA$2.6 billion in 32 private equity funds. The target for 2006 is to commit CA$2 billion.
The private equity group employs 70 professionals. A team of six people looks after the private equity fund investment side of the business, while another team of 8 professionals is responsible for venture capital fund and co-investments. The other members of the private equity group focuses solely on direct investments and co-investments.
Pierre Fortier joined the private equity group of the Caisse de dépôt in 1984, and was first involved in direct investments. In 2003 he took over the management of the newly formed fund investment team. Until 2003 the fund investment portfolio was treated as an add-on to the Caisse de dépôt's direct investment activities.
Why do you invest in private equity funds?
'We use our GP portfolio as an anchor to our strategy outside Canada. We have used co-investment opportunities and fund investments to break into the US and European markets, for example. It is always easier to find good opportunities in your own market.'
Which funds are in your portfolio?
'Overall about 85 per cent of the funds in our portfolio are buy-out funds and 15 per cent venture capital funds.
Currently we have about 55 per cent committed to funds in North America, 35 per cent to funds in Europe and the balance to funds outside North America and Europe, mostly in Asia. We started investing in Asia at the beginning of the 1990s. Our Asian investments have been mostly in Japan and mostly in buy-outs. We are looking to increase our investment activity in Asia but we are not sure that this is the right time to be in the region. India certainly looks very interesting. We are also observing what is happening in China.
In Europe we tend to focus on pan-European buy-out funds, based in Western Europe. The private equity market in Central and Eastern Europe is not very big. We prefer to access the CEE region through GPs that are already in our portfolio rather than through GPs based in the region.
Our GPs have done investments in the CEE region and the financial returns have been decent. However, the size of the investments in the region is usually not quite big enough to make a real difference to our portfolio and that is why we are not looking to expand our activities in CEE massively over the next few years.
Another country we like investing in is Australia but, again, it is not a big market.
Examples of fund managers in our past and/or current portfolio are Warburg Pincus, BC Partners, The Blackstone Group, AXA Group, Carlyle, Candover, VantagePoint Venture, Ares Leveraged, Lightyear, Arclight Energy.
Since 2004 we have reduced the number of GPs in our portfolio. We started off with 110 and our target is to get the number down to 45. The reasons behind this move are that we are looking to build stronger relationships with top-performing GPs and that we aim to invest larger amounts with the very best managers. We currently do between ten and 15 fund investments per year.'
How much do you invest per fund?
'Our fund commitments start at CA$50 billion. Typically we invest in the range of US$75-150 million or €75-150 million per fund.'
How do you find out about good investments?
'Since 1996 we have had a strategic partnership with AXA Private Equity. We work together with AXA on the key markets of North America, Europe and Asia. AXA selects non-Canadian mid-market funds and manages our non-Canadian mid-market fund portfolio for us. We select and manage larger GPs ourselves - in that space the list of GPs is much shorter and we have a good understanding of the market and the players in that market.'
How do you monitor your fund portfolio's performance?
'We are in touch with our GPs at least once a quarter and meet them in person two or three times a year. This is much easier now as we have reduced the number of our GPs.
We have a firm that deals with all our back office. It does the review of the portfolio and the performance review.'
What is your appetite for first-time funds?
'We have done investments in first-time funds in the past and we will continue to look at such opportunities in the future. However, we do not do first-time funds raised by first-time investors.'
What do you look for in a good private equity manager?
'Stable performance and a team that has been together for a while are key factors. We also take a close look at the positioning of the team and the firm in the market.
The ability to deliver co-investment opportunities is also important to us, although we would not invest in a fund because it is able to offer co-investment opportunities when there is a better fund in the market that does not offer co-investment opportunities.'
What would put you off investing with a certain GP?
'Lack of performance, high staff turnover at the senior level, or a major strategy shift.'
Would you consider doing secondaries?
'We have invested in a secondaries fund and we do secondaries deals ourselves, but through the GPs in our portfolio.'
What advice would you give to a new private equity investor?
'This is a year to be very careful because we could be close to a peak in the market. We are very concerned about the current state of the market. A lot of deals are done because financing is so easily available and it is very cheap. I do not think that the financial markets can continue to be as generous as they are at the moment. I would advise investors to be even more selective with fund investments, co-investments and direct investments than in the past.
Keep in mind that the average GP is not delivering returns that beat the financial markets. Many investors are moving into private equity at the moment on the basis that everyone will be able to achieve the return of the first quartile but that is not possible, of course.
Investors need to be very disciplined. It can be very frustrating when you see the right deal at the right price and you go into an auction and get beaten by 20-25 per cent. You then ask yourself, 'What do the others have that you do not have?' The answer is usually that their return expectations are lower.'
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