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Ontario’s pension fund for local government workers is increasing its bets in private companies, seeking to replicate success it had backing technology stars such as Shopify Inc. and Constellation Software Inc.
The growth equity department at Ontario Municipal Employees Retirement System has accelerated its activity this year, investing in seven companies to expand its portfolio to 12. The plan is to make it a 30-company portfolio over time, which would translate into billions of dollars of capital deployed, according to Mark Shulgan, the pension fund’s head of growth equity.
“There were three investments that we closed during the pandemic where I had never actually met the CEOs,” Shulgan, 45, said in an interview. “We were getting out of our comfort zone a little bit, but it was something that we learned to do, and now I’m really excited to meet them all in person and see if there is a three-dimensional figure.”
Shulgan’s group tries to fill the gap between venture financing of early-stage companies and Omers’ private equity holdings of larger firms. It has invested more than $600 million (US$478 million) since he was hired in 2018 from the Canada Pension Plan Investment Board.
The team of 15 people has deployed most of its money in the U.S., where it has invested in nine companies. This year it bought stakes into two California-based health technology companies, Evidation Health Inc. and Innovaccer Inc.; the latter investment, at a US$1.3 billion valuation, was done alongside Tiger Global Management and M12, Microsoft Corp.’s venture fund.
Omers also joined T. Rowe Price Group Inc. in a funding round for Canadian software company Clio, which serves the legal market and is valued at US$1.6 billion.
“In the early days, we were really focused on being a lead investor in all of the companies that we invested in,” Shulgan said. Now the fund is comfortable “not always leading and setting the terms.”
The group has been investing in the U.S. out of its Toronto office. The plan is to have people on the ground in Palo Alto as well, and then expand into western Europe, in search of investments ranging from $50 million to $300 million.
Omers, one of Canada’s largest pension funds with $105 billion, went into this year planning to increase its overall exposure to technology and the Asia-Pacific region after it lost 2.7 per cent in 2020, its worst year since the financial crisis.
The losses were caused largely by holdings of real estate, energy and consumer companies that were hit hard by the COVID-19 pandemic, Chief Financial and Strategy Officer Jonathan Simmons told Bloomberg earlier this year.
One distinction Omers can offer private companies is that it can support them from the venture stage until after they go public, Shulgan said. Two examples are the pension fund’s early investments in Shopify -- now Canada’s most valuable company, with a market capitalization of almost US$200 billion -- and Constellation Software, which Omers gave seed money to in the 1990s and which has returned nearly 40 per cent a year since going public in 2006.
“We held them for a very long time and supported them at each stage of their growth,” Shulgan said.
To be sure, Omers wasn’t the only fund busy pursuing technology-related deals in the first half of 2021. “I was working in the early 2000s during the tech boom, and if you looked at the actual statistics, you would say this period has been busier,” Shulgan said.
“The market did get very enthusiastic over the first half of this year. And valuations really started to accelerate so we’ve been seeing a lot of increased activity.”