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CDPQ: Direct, co-investing requires trust

Direct investing versus fund investing was a topic of debate during the LP panel at the recent Private Equity in Emerging Markets conference in London.

The C$200 billion ($176 billion; €138 billion) Caisse de dépôt et placement du Québec (CDPQ) intends to increase its allocation to alternatives and emerging markets over the next five years. And it is keen to use private equity co-investments and direct investments as part of this increase, Frederic Godbout, vice-president in the institution’s private equity team told delegates at a recent conference.

CDPQ is already a supporter of a more direct route to agri investing after committing to TIAA-CREF’s collective investment vehicle TIAA-CREF Global Agriculture I, which closed on $2 billion in May 2012. It is also understood to be a cornerstone investor in the US pension provider’s second vehicle but has yet to confirm the reports.

Direct investing is important because it enables an institution to create its own deal flow and maintain comfort over the region or sector those investments are in, Godbout told delegates at the Private Equity in Emerging Markets forum organised by EMPEA and FT Live in London this week.

In funds and co-investments, the opportunities are presented to you, which can be less appealing, he argued.

Investing directly or alongside a partner does involve a lot of trust, which can only be built through increasing interaction, he added.

Ontario Teachers’ Pension Plan’s portfolio manager Jesús Argüelles also spoke on the importance of ensuring all parties’ interests are aligned in a co-investment or direct investment. If investing in a fund, the pension fund wants to know exactly how the fees are used to manage assets and resources.

The C$140 billion OTPP created a tactical allocation for natural resources in 2013 to bring together the management of commodity derivatives plus physical assets including timberland, oil and gas, agriculture and water. Timberland accounts for 23 percent of the natural resources allocation, according to the institution’s website. Ziad Hindo leads this effort as senior vice-president, tactical asset allocation & natural resources.