Canada pension fund the Ontario Municipal Employees Retirement System (OMERS) is nearing an agreement on the purchase of Inchcape Shipping Services, the marine management services company owned by the private equity arm of troubled state investor Dubai World, according to the Financial Times.
The deal would be the first OMERS has carried out in Europe after opening a London office six months ago, and reflects a trend among Canadian pension funds to make direct investments instead of going through private equity funds as limited partners.
Carlyle, Cinven, CVC Capital Partners and General Atlantic are also among the final round bidders for ISS, but OMERS is reportedly the favourite of the company’s management. The Toronto pension fund has shown a willingness to hold onto assets for longer than the standard three- to five-year private equity investment lifespan and has a more hands-off management approach, which may explain the preference of the ISS higher-ups.
Dubai World private equity arm Istithmar acquired the company from Electra Private Equity in January 2006 for $285m, at the start of a two-year spending spree that included the purchase of luxury New York department store Barneys for $942.3m and a stake in live entertainment group Cirque du Soleil.
ISS is reportedly one of the few Istithmar investments that has paid off, prompting the strong private equity interest in the asset. The company, expected to go for somewhere between $600m and $700m, is the world’s largest private marine management services provider, with offices in 50 countries and a client base including oil, cruise, container and bulk commodity sectors.
Large institutional investors are increasingly seeking to bypass private equity firms and make investments on their own terms, or to take advantage of buy-out house vulnerability after several years of fundraising difficulty by demanding greater concessions on fees.
Last month, OMERS revealed that is had bounced back from its massive recession losses, reporting a CAN$4.3bn ($4.1bn) gain on investment income for 2009 compared to a CAN$8bn ($7.7bn) loss in 2008.
Private equity investments, which had been one of the fund’s biggest losers in 2008, produced the highest rate of returns of 2009 out of all the asset classes in the fund’s portfolio. Private equity represented a -13.7 per cent black hole for OMERS in 2008, almost a mirror image of the 13.5 per cent benchmark it had set for the asset class.
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