NORTHLEAF CAPITAL GETS US$2.2 BILLION INJECTION FOR PRIVATE EQUITY INVESTMENT IN CANADA.

First time for institutions outside Canada

TORONTO • Private markets fund manager Northleaf Capital Partners has raised US$2.2 billion from new and existing institutional investors to bolster its global private equity program.

While the Toronto-based firm invests globally, this marks the first time funds were sought from institutional investors outside Canada for the private equity program. The new international investors are primarily pension plans and private banks based in northern Europe, according to Northleaf managing partner Stuart Waugh.

In an interview, he said Canada will remain the core market for raising investment funds for private equity, but added that the firm’s mid-market strategy and global investment track record “resonated” with the overseas investors.

“The last time we went out to the market and raised private equity capital would’ve been 2013-2014, and we raised in total about US$1.3 billion that time around, so it’s a significant step up (this time),” Waugh said.

“From the investor perspective, that really comes back to the track record, (and) how the team has continued to grow,” he said. “We’ve continued to expand the footprint and, you know, the deal flow has been strong, and returns have been pretty much as advertised.”

Northleaf, a unit of Toronto-Dominion Bank before a 2009 spinoff, now manages more than US$11 billion on behalf of institutional investors in three programs: private equity, private credit, and infrastructure. The firm targets mid-market private investments through a combination of transactions including direct minority investments and co-investments, and secondary market transactions.

Waugh said Northleaf, whose team of 110 people is in seven offices spanning four countries, is able to attract money from a variety of institutional investors — including large pension funds — because it has specialized in a desirable segment of the market.

The firm is benefiting not only from its own track record but from a “broader shift across the global markets towards more exposure to privates,” he said, noting that some large pension funds are moving up to 40 or even 50 per cent of their assets into private investments, rather than the public markets.

“What we’re seeing is that same thing now being applied at the mid-to-smaller institutional level, the family offices, the endowments, that same trend is taking hold and … we’re seeing that reflected in the fundraising,” he said.

“The private markets really have demonstrated, through the (2008 financial) crisis and beyond, their ability to, if you do it well, to really generate good returns.”

A significant portion of the funds managed by Northleaf come from the Canada Pension Plan Investment Board, though it was not a participant in the latest capital raise, Waugh said.

“We’ve still got capital (from CPPIB) that we’re investing … it’s progressing well, but there’s still some dry powder there, so we’ll finish that up before we go back to them.”

While Northleaf isn’t on the hunt to raise more money for infrastructure investments, Waugh said the team is closely watching developments at the Canada Infrastructure Bank.

The crown corporation was created to use federal support to attract private sector and institutional investment to new, revenuegenerating infrastructure projects.

RETURNS HAVE BEEN PRETTY MUCH AS ADVERTISED.