CDC Software wants to position themselves “at the forefront in the enterprise market with its ability to offer an end-to-end supply chain execution solution – from raw materials to the end consumer.” Congrats to JLA, VG, the management team and the Truition board. A nice outcome for all.

Once it closes, this deal will represent Wellington’s third M&A exit so far this year.

MRM

It was early one morning not too many days ago, and I watched a female member of the militia fumble for change as she was about to get on the streetcar. She was in full uniform, and not the parade type, complete with a decent-sized rucksack. I’m not sure where she was going at 8am, but I’m confident that it wasn’t a glamourous appointment.

Made me think. We don’t really need to drain a TTC token from uniformed members of the Canadian Armed Forces. If our Private was on her way to a training exercise, the kind that prepares you to ultimately ship off to Afganistan, wouldn’t it be nice if we treated her the same way we treat uniformed members of the Toronto Police. As a society, we benefit when on-duty Officers travel on TTC; the system is safer. No doubt about it.

Whether someone in uniform is protecting us at home, or training to protect us abroad, let’s give them a free pass. It’s the least we can do.

MRM

The CPPIB fund is sitting on assets of $123.8 billion, and 26.8% of that sum is currently committed to our private equity program (see prior post “Doubling Down on Private Equity at CPP Investment Board” February 20-09). Here are some CPPIB PE stats to noodle:

Capital committed to private equity funds: $32.66 billion
Capital called to date by fund managers: $16.98 billion
Carrying value of PE capital called to date: $17.92 billion
Capital still to be called by funds: $15.68 billion

Nine months ago (using 9/08 data), this is how it looked:

Capital committed: $28.9 billion (26.5% of CPPIB’s Dec/08 AUM)
Capital called to date: $14 billion
Carrying value of capital called to date: $17.1 billion
Capital still to be called: $14.8 billion

If you’re wondering about the impact the global financial crisis has had on CPPIB’s PE program, consider this:

Between September 2008 and June 2009, PE managers called about $3 billion of capital to fund transactions and fees (~$490MM covered 9 months of mgmt. fees). Drawn capital grew from $14 billion to $16.98 billion over the nine month period, yet the carrying value grew from $17.1 billion to just $17.98 billion. About $2 billion in value was “lost” during the nine month period.

Of note, since the CPPIB starting making PE investments in 2000, they’ve earned about $934MM on invested capital of $16.98 billion — which represents a 5% simple return for the decade (a majority of the program’s capital was committed between 2006-08, when about $18.8 billion was locked into primarily large and mega buyout funds).

I’m not suggesting for a moment that you should worry about $2 billion of value lost over a nine month period. The quarterly mark-to-market swings within PE portfolios over the past nine months were understandably large. The irony of applying GAAP fair market value accounting to the buyout world means, simply, that private investments will swing with the public market indicies. Far more correlated to the public investing world than private equity was, in theory, supposed to be.

In the meantime, we can keep our eyes on these figures. Since 2000, CPPIB’s PE program has returned distributions of $7.6 billion to the fund. For the program to reach “self-funding” status, CPPIB’s existing PE program needs to generate another $16 billion of cash over the next few years.

Otherwise, a big chunk of our weekly payroll contributions will have to be steered this way to cover the ongoing PE capital calls (see prior post “PE consumed 61% of CPPIB quarterly payroll contributions in Q4“).

MRM

Some of the more notable large moves between Q2 2008, Q1 2009 and Q2 2009 are below (vintage year of the fund is in brackets). That’s merely 12 months of a fund’s life, but the moves were exciting:

- Apollo Inv. Fund V (2002) reported a return drop from 252% to 97%; holding at +99%

- Apollo VI (2005), with 105% drawn, saw it’s 26.4% positive return turn into a negative 36%, and has recovered a bit to negative 19%

-Blackstone IV (2002)’s return fell from 171.6% to 95%; now up 101%

-Blackstone V (2005)’s return fell from 7.7% to a loss of 28%; now down 27% with 82% drawn

- First Reserve XII has already put out 29% of their 2008-vintage year fund, and the carrying value is down 25% so far

- KKR Millenium Fund (2002)’s return dropped from 63.3% to 15%; now +18%

- KKR 2006 is 73% drawn, and a positive 5% return became a negative 27%, and has risen to negative 20%

- MidOcean Partners’ #II (2005) fund has still not closed a single deal since they raised their capital 4 years ago, and they’ve only drawn the smallest amount of mgmt. fees

- Providence’s VI (2006) fund is now 52% drawn, but went from being flat to down 28%; now down 24%

- TPG Partners IV (2003)’s return dropped from +80.8% to +18.7%; now +23 with 106% drawn

- TPG Partners V (2006) is drawn at 83% of CPPIB’s US$500 million, and they went from being down 5.6% to down 35%; now down 33%. This fund is the one with the bad investment experience in WaMu bank

The figures that follow cover four categories: CPPIB’s commitment, paid-in-capital (which tells you how much of the fund is invested in deals and/or drawn to pay management fees), reported value, and reported value + distributions (which tells you what the notional simple return of the fund is against the paid-in-capital figure). That figure is based in large part on what the manager believes the portfolio is worth as at June 30, 2009, subject to GAAP fair value accounting. The year in the brackets reflects the year that the investment commitment was made by CPPIB. MM equals millions:

Apollo Investment Fund V (2002): $150MM, $217.3 (145%), $89.0MM, $432.4MM; +99%

Apollo VI (2005): $400MM, $418.1MM (105%), $271.3MM, $338.4MM; -19%

Apollo VII (2007): $600MM, $159.4MM (27%), $114.0MM, $137.3MM; -14%

Blackstone Capital Partners IV (2002): $185MM, $192.1MM (104%), $133.4MM, $385.6MM; +101%

Blackstone Capital Partners V (2005): $410MM, $338.1MM (82%), $218.1MM, $245.5MM; -27%

Blackstone Capital Partners VI (2008): $500MM, $0, $0, $0

Carlyle Venture Partners II (2002): $60MM, $69.2MM (115.3%), $35.3MM, $68.3MM; -1.0%

CCMP Capital Investors II (2006): $367.7MM, $109.5MM (30%), $79MM, $79.2MM (-28%)

CSFB Mid Market Opportunity Fund (2003): $140MM, $114.8MM (82%), $99.9MM, $128.7MM; +12%

CSFB Mid Market Opportunity Fund II (2005): $300MM, $137MM (46%), $111.8MM, $131.8MM; -4%

CSFB Mid Market Opportunity Fund III (2007): $400MM, $59.1MM (15%), $52.6MM, $55.5MM; -6%

First Reserve Fund XI (2006): $300MM, $244.9MM (82%), $205.7MM, $222.1MM; -9%

First Reserve Fund XII (2008): $500MM, $142.8MM (29%), $106.5MM, $106.5MM; -25%

Goldman Sachs Vintage Fund IV (2006): $200MM, $132MM (66%), $89.9MM, $102MM; -23%

Goldman Sachs Vintage Fund V (2008): $300MM, $66M (22%), $58.7MM, $58.7MM; -11%

Heartland Industrial Partners (2001): $150MM, $140.4MM (94%), $17.9MM, $25.4MM; -82%

Hellman & Friedman Capital Partners V (2004): $75MM, $67.1MM (89%), $58.1MM, $119.3MM; +78%

Hellman & Friedman Capital Partners VI (2006): $400MM, $254.1MM (64%), $219.8MM, $226.2MM; -11%

JP Morgan Partners Global Investors (2001): $175MM, $167.8MM (96%), $78.7MM, $224.8MM; +34%

KKR Millenium Fund (2002): $282.5MM, $329.6MM (117%), $204.4MM, $388.2MM; +18%

KKR 2006 (2006): $467.3MM, $341.8MM (73%), $268.1MM, $272.1MM; -20%

Lightyear Fund II (2006): $100MM, $58.8MM (59%), $44.1MM, $45.3MM; -23%

MidOcean Partners (2003): $273.1MM, $260MM (95%), $27.1MM, $550.1MM; +112%

MidOcean Partners II (2005): $100MM, $0.8MM (1%), $0.1MM, $0.1MM; nmf%

New Mountain Partners III (2007): $200MM, $52.5MM (26%), $44.5MM, $47.3MM; -10%

Paul Capital Holdings II (2004): $120MM, $106.8MM (89%), $67.3MM, $220.1MM; +106%

Paul Capital Partners VII (2001): $90MM, $86.3MM (96%), $21.7MM, $131.8MM; +53%

Paul Capital Partners VIII (2004): $100MM, $89.8MM (90%), $60MM, $104.9MM; +17%

Paul Capital Partners IX (2007): $100MM, $40.3MM (40.3%), $32.1MM, $34MM; -16%

Paul Capital Top Tier II (2002): $96MM, $81.7MM (85.1%), $59.6MM, $75.9MM; -7%

Paul Capital Top Tier Investments III (2005): $160MM, $86.4MM (54%), $77MM, $83.8MM; -3%

Performance Venture Capital (2005): $185MM, $91.3MM (49%), $71.1MM, $81.2MM; -11%

Providence Equity Partners VI (2006): $400MM, $207MM (52%), $154.3MM, $156.6MM; -24%

Resolute Fund II (2007): $200MM, $48.3MM (24%), $36.7MM, $36.8MM; -24%

Silver Lake Partners II (2004): $100MM, $93.5MM (93.5%), $61.3MM, $93.3MM; 0%

Silver Lake Partners III (2006): $500MM; $108.8MM (22%), $67.6MM, $68.6MM -37%

Thomas H. Lee Parallel Fund VI (2006): $250MM, $123.6MM (49%), $103.4MM, $103.9MM; -16%

Thomas Weisel Partners GGP II (2003): $50MM, $45.3MM (91%), $33.5MM, $53.2MM; +17%

TPG Partners IV (2003): $100MM, $106.8MM (107%), $72.2MM, $131.6MM; +23%

TPG Partners V (2006): $500MM, $413.9MM (83%), $201.4MM, $278.0MM; -33%

TPG VI (2008): $750MM, $46.9MM (6%), $11.2MM, $11.2MM; -76%

Welsh, Carson, Anderson & Stowe X (2005): $200MM, $168.0MM (84%), $151.6MM, $151.6MM; -10%

Welsh, Carson, Anderson & Stowe XI (2008): $300MM, $2.8 (1%), $2.4MM, $2.4MM; nmf%

Tomorrow I’ll share the big ticket secret: CPP Investment Board’s unfunded liability for their entire private equity program….

MRM

CIBC World Markets has created an Infrastructure lending team which will be led by Managing Director Peter Mastromarini who was previously Executive Director within their Loan Syndications group. Geraint Breeze will join the team as an Executive Director. Geraint previously led the Canadian Infrastructure finance team at Lloyds Bank. Sami Zahur has joined the team as an Associate, moving from Fixed Income, Currencies & Distribution.

Geoff Scott has joined RBC Capital Markets as Director, National Client Group in the Toronto office. Geoff was most recently with National Bank of Canada in Montréal.

Jeffrey Brown has joined Banc of America Merrill Lynch as Vice-President, Structured Products. Jeffrey was previously Vice-President at CI Investments.

TMX Group has hired Gary Knight as Vice-President, Trading, TSX Markets. Gary was most recently with Cormark Securities as Senior Institutional Equity Trader.

Tom Jarmai has founded his own firm, Globalcan Financial Advisors, after leaving Blackmont Capital Markets where he was Head of Investment Banking.

Bryan Lopushinsky has joined First Energy Capital in Calgary as Vice-President, Institutional Sales from Credit Suisse.

Andrew Edward Osbourne left Macquarie to join First Energy Capital in Calgary as a Corporate Finance Analyst.

TransCanada has hired Rick Petersen as a Senior Analyst, Energy Investment Analysis and Acquisitions in Calgary. Rick was previously at TD Newcrest as an Energy Research Associate.

James Fox has been promoted to President of Sprott Asset Management from Senior Vice-President, Sales & Marketing.

David Beck has joined the Institutional Trading team at GMP Securities, leaving RBC Capital Markets where he was a Proprietary Trader.

Octagon Capital has hired two Research Analysts:
• Rob Chang has joined as a Mining Analyst. Rob was most recently a Director, Research & Trading & Associate Portfolio Manager at Middlefield Capital
• Arthur Kwan has joined as an Energy Analyst in Calgary. Arthur was previously at Thomas Weisel Capital Partners as Vice-President, Investment Banking

BMO Capital Markets’ Special Situations Analyst, Peter Sklar, will now cover the Retail sector.

PSP Investments has hired Mark Giuliani as Director, Private Equity in Montréal. Mark was most recently at BDC Venture Capital as Director, Analysis and Portfolio Valuation.

Northern Securities has hired Jeff Shanta to their institutional equity sales group. Jeff was previously Assistant Vice-President of Sales at Computershare Investor Services. Institutional Equity Trader James Che will also be joining the firm from Wellington West Capital Markets.

Oil & Gas Research Analyst, Geoff Ready, has joined Haywood Securities in Calgary from Pacific International Securities.

Peter Yoon has joined Alberta Teachers’ as a Senior Equity Analyst. Peter was most recently at Desjardins Securities as an Energy Services Analyst, Institutional Equity Research.

Edgestone has hired Benji Sucher as an Analyst. Benji was previously a Senior Associate at PWC.

Alexander MacDonald has joined Wellington West Capital Markets as a Research Associate in Energy Services. Alex is a recent MBA graduate from the Richard Ivey School of Business.

Correction: Fiera Capital has hired Nick Cileli as a Senior Analyst, Foreign Equities. Nick was previously at Bimcor as a Senior Analyst, Canadian Equities.

MRM

This post is the latest in the ongoing series covering the Canadian general partners that have been lucky enough to receive a limited partner commitment from the CPP Investment Board (see prior post “CPPIB Canadian general partner Q1 2009 performance numbers” August 30-09). For the tenth consecutive quarter, Canada’s very own national pension fund didn’t make a single new direct formal commitment to a Canadian-based general partner (other than Onex Corp).

The CPPIB team did commit, however, to 18 U.S. and international GPs during 2008; but just two foreign funds in Q1 2009 and none in Q2. That was likely a tough quarter to be pitching your boss on doing yet another private equity fund commitment.

In total, 42 of the last 43 direct GP commitments have been outside of Canada.

If you are a regular visitor to the site, you’ll know that we pull out the figures showing the performance results that the Canada Pension Plan Investment Board is receiving from its GP relationships (they’ll want me to remind you that’s calendar Q2, not CPPIB’s fiscal Q2).

The figures that follow cover four categories: CPPIB’s commitment, paid-in-capital (which tells you how much of the fund is invested in deals and/or drawn to pay management fees) reported value, and reported value + distributions (which tells you what the notional simple return of the fund is against the paid-in-capital figure). That figure is based in large part on what the manager believes the portfolio is worth as at June 30, 2009, subject to GAAP fair value accounting. MM means millions.

As we’ve done in the past, I’ve added our own Fund II returns (as at Q3/09) as they get muddled when included as part of the CPPIB Legacy fund of fund program that committed $10 million in December 2004 (back when Edgestone ran the program for CPPIB) to our $83MM Wellington Financial Fund II. I’ve also stripped out the returns that we provided to that fund to see how it did without our profits baked in (the loss increases from -34% to -39%). Fund II ceased pursuing new transactions in August 2006 with the first closing of our $150MM Fund III that month (CPPIB doesn’t have $ in our Fund III, either directly or via NorthLeaf’s {formerly called TD Capital} VC fund-of-fund program):

Canadian Venture and Life Science Funds

Celtic House VP Fund II (2002 US$):
$13.5MM, $15MM (111%), $9.8MM, $21.1MM (+41%)

Celtic House VP Fund III (2005 US$):
$50MM, $29MM (58%), $20.7MM, $21.6MM (-25.5%)

Edgestone Venture Fund (2000):
$50MM, $44.7MM (89.4%), $17.6MM, $64.5MM (+44.3%)

Edgestone Venture Fund II (2004):
$50MM, $43.5MM (87%), $31.2MM, $31.2MM (-28.3%)

Lumira/MDS Life Sciences Technology Fund II (2002):
$200MM, $111.2MM (56%), $49.1MM, $109.8MM (-1.3%)

Skypoint Telecom Fund II (2001 US$):
$25MM, $23.2MM (93%), $7.3MM, $10.9MM (-53%)

TD Capital Legacy VC Fund (2002):
$82MM (originally $100MM), $64.8MM (79%), $33.0MM, $42.8MM (-34%)

TD Capital Legacy VC Fund (2002)
ex-Wellington’s Fund II investment:
$72MM, $59.2MM (82%), $32.6MM, $36.1MM (-39%)

Ventures West 8 (2003):
$50MM, $42.1MM (84%), $32.6MM, $34.7MM (-18%)

Wellington Financial Fund II (12/04):
(CPPIB participated in our $83MM Fund II via a $10MM commitment when Edgestone managed the “Legacy VC Fund”)
$83MM fund size, $56.3MM (68%), $3.4MM, $66.4MM (+18%)

Canadian Buyout & Debt Funds

Birch Hill Equity Partners III (2005):
$85MM, $83.9MM (99%), $80.3MM, $84.5MM (+1%)

Clairvest Equity Partners I (2001):
$50MM, $46.8MM (94%), $13.8MM, $70.6MM (+51%)

Clairvest Equity Partners III (2006):
$40MM, $18.6MM (47%), $15.4MM, $15.4MM (-17%)

Edgestone Equity Fund II (2002):
$100MM, $91.3MM (91%), $65.5MM, $124MM (+36%)

Edgestone Equity Fund III (2006):
$100MM, $63.1MM (63%), $34.2MM, $48.7MM (-23%)

Edgestone Mezzanine Fund II (2000):
$30MM, $29.3MM (98%), $1.6MM, $27.7MM (-6%)

Kensington Co-investment Fund (2002):
$40MM, $42.4MM (106%), $8.8MM, $53.0MM (+25%)

Onex Partners (2003 US$):
$150MM, $139.6MM (93%), $150.0MM, $314.4MM (+124.7%)

Onex Partners III (2008 US$):
$400MM, $19.4MM (5%), $14.3MM, $14.3MM (nmf%)

TD / CPPIB CDN Private Equity Holdings I (2006):
$400MM, $155.5MM, (39%), $111.3MM, $119.4MM (-23.2%)

TD Capital CFOF Legacy Buyout (2002):
$121MM, $110.3MM (91%), $65.5MM, $120.9MM (+9.6%)

Tricap Restructuring Fund (2001):
$150MM, $187.1MM (125%), $37.3MM, $260.9MM (+39%)

Tricap II (2006):
$300MM, $299.9MM (100%), $191.6MM, $280.4MM (-7%)

MRM

We announced the opening of a California office yesterday, which is our first physical foray outside of our home base in Toronto. Since Wellington Financial Fund II started doing deals in 2004, we’ve been inundated with Canadian-based financing opportunities. With just under 50 closed financings ($275 million of deal leads) between our Funds II and III since that date, there was never much need to look outside Canada for great Innovation stories.

But that’s changed, and for a few key reasons:

- the global credit crisis has dramatically reduced the amount of capital available for growth stories, and venture debt firms that relied on 3rd party bank warehouse lines or conduits to provide part of their capital base have seen much of that capital disappear (we are 100% equity financed);

- although the USA has oodles of venture capital available, at least on a relative basis, this year’s estimated US$18 billion of new VC investments is still down from 2008’s US$29 billion. For American Innovation stories, that’s US$11B less to go around…tacked on to a recession and a bleak fundraising climate going forward.

- in January, the Canadian and U.S. governments decided that it no longer made sense to charge a 15% witholding tax for cross-border interest income; we can now compete with U.S.-based funds;

- the American idea of a “small company” is about twice as big as the same candidate in Canada, which means a far larger pool of high quality opportunities for us to review, leaving aside the fact that the U.S. annual GDP is about 12x that of Canada’s. That’s a massive fire hose;

- over the years, we’ve worked with about a dozen U.S. VCs on Canadian deals, and the experience has been fantastic (Airborne and OZ Communications, to name but two, were home runs for all involved);

Why Southern California? Good question. Over the past few months, we’ve spent time meeting with U.S. players on the East Coast, all the way down to the tip of Florida. The Northeast and Mid Atlantic regions are particularly handy to Toronto, and the time zone is a treat.

Travelling to Boston or Washington is faster than many Canadian cities, even with the border. If you’re a Boston-based tech company, for example, we’ve found that they don’t really care whether we are based in New York or Toronto; the issue is simply “do you get it?”

Although we did a Seattle-based transaction in July, we’ve got a Mass. deal closing later this month — the East coast suitcase strategy is working for now.

California, however, requires a local presence to have any impact. And then there’s the tricky issue of remote teams. Since one can’t overstate the important of ethics and team fit in this industry, it’s never been easy to get one’s head around multiple office locations.

But, in Eric Speer, we’ve found someone who has 20+ years experience working with high growth companies. The past 6-7 years were with Vencore, a U.S. venture debt fund backed by merchant bank D.E. Shaw. Several local VCs spoke very highly of him, and although he’s not based in Silicon Valley, that made sense as well. Southern California is underserved on a relative basis, and as VC markets go, it is still #4 or #5 in all of North America depending upon the year.

We are excited to have Eric establish Wellington Financial’s presence in the California region. And he thinks companies are going to love our non-amortizing term debt product, not to mention the one-stop-shop revolver / term loan structures that make us unique among independent firms.

Welcome Eric, and all of your neighbours!

MRM

The big news is as follows: I have it on excellent authority that a book has gone to the printers that will represent the world exclusive story regarding the first 25 years of Research in Motion (RIM:TSX, RIMM:Q). My source tells me that the book represents the first interviews of this kind with the Co-CEOs of RIM, along with the majority of the key employees who’ve made RIM an international tech and marketing success story.

It will be, without a doubt, the “inside story”.

Here’s the publisher’s teaser:

Launched in 1984 with a $15,000 parental loan and a matching student loan from the Ontario government, RIM has grown into one of the most successful and admired technology companies in the world, with sales of more than 50 million BlackBerry smartphones by 2009 and annual revenue in excess of $11 billion.

Rod McQueen, a National Business Book Award-winner, interviewed more than 100 RIM employees and industry participants during his research, including in-depth interviews with both of RIM’s co-CEOs Mike Lazaridis and Jim Balsillie.

A lead title for Key Porter’s spring 2010 list, BlackBerry will publish March 1, 2010. “I jumped at the chance to publish this book,” says Key Porter’s publisher C. Jordan Fenn. “BlackBerry is Canada’s biggest success story and their little device has revolutionized how we communicate today.”

MRM
(disclosure - I own RIM)

They discussed executive pushback on financial rules and Canada’s problem with productivity.  The interview link is here.  

LFC

Although the Canadian Venture Capital & Private Equity Association has developed five key ideas that, as a package, could help reinvigorate the Innovation financing scene (see prior post “CVCA letters to Messers Flaherty, Clement and Ignatief” December 26-08), there’s no end of other choices for the federal government to consider in the lead up to the 2010 Budget.

Name Canada’s two strongest industries? Mining and Oil & Gas. Who has access to this unique financing tool? Mining and Oil & Gas exploration companies. Why not allow flow-thru shares for Innovation companies?

While it’s true that a clean tech company can file for a SR&ED claim, those often amount to less than $1 million in any given year, and the money must be spent before you can hope to send the filing in to CRA. But, if you’ve got a developing O&G property and investor interest for $20 million…you’re off to the races witha flow-thru offering.

Kinda explains why no one ever complains about capital contraints in that part of the economy.

I read in the Daily Telegraph this morning that Barrick Gold’s CEO believes the world is running out of new gold to find, and that ore grades have falled 75% since 1950 at the North American and Australian mines.

The Canadian economy cannot live off the land anon. We need to find new ways to create jobs and grow the economy, but our tax system is stuck favouring firms who dig things out of the ground, and not the start-up firms who create the mining technologies that make those mines and wells more efficient, extending their life.

Why the double standard?

We chatted about that very topic, along with a few others, on Kim Parlee’s SqueezePlay show last evening on BNN Business News Network. You can see the clip here. As an aside, as much as Clearwater CEO John Risley is a talented businessman, he’s also damn good on television!

I’m a fan of package deals, so how about this? An Atlantic Canada flow-thru share Innovation Fund headed by Mr. Risley?

MRM