Equicapita Update – Canadian Pensions Increase Allocations to Alternatives but Still Lag US Averages
Calgary, Canada, October 22, 2013 --(PR.com
)-- Low portfolio returns are driving Canadian pension plans to increase allocations to alternatives according to pension consultant Mercer. A recent Mercer survey showed that in 2013:
- 38% of plans indicated they are investing in alternatives versus 25% in 2010;
- 18% of plan assets were in alternatives, versus 15% in 2010.
Despite these increases, alternative allocations lag other markets, particularly the US. The Mercer survey also revealed what they believed was insufficient diversification within the alternative universe with Canadian plans focusing on real estate and infrastructure and not as much in hedge funds and private equity.
Greg Tooth, a partner at buy-out firm Equicapita reports, "One of the facets of our investment premise is that the generational transfer of ownership of baby boomer businesses far exceeds the amount of capital currently dedicated to this space. In order for this hand-off to occur at reasonable valuations and in an orderly fashion, much more institutional and dedicated investment capital must come into the small, medium enterprise private equity space. Ultimately we believe this will include large pension plans via specialized SME PE funds such as Equicapita. In the meantime, we have created a RRSP eligible fund that allows individual investors to participate directly in this asset class today.”
Equicapita is a Calgary-based buy-out fund focusing on acquiring Canadian private businesses that can generate strong, sustainable cash flow from their operations in niche markets. Equicapita generally seeks to acquire businesses:
- at what it believes are reasonable prices;
- with a demonstrated history of cash flow greater than $1 million per annum;
- with a durable competitive advantage;
- that operate in industries that Equicapita believes have sound long-term macro prospects;
- with ongoing participation of senior personnel;
- with the ability to maintain the cash flow without disproportionate amounts of new capital
- where Equicapita can partner with management and align their interest with Equicapita through tools such as earn-outs, vendor take backs and management incentive plans;
- to be held for the long term;
- where there is some potential to grow sustainable free cash flow, but where that growth is not essential to generate suitable returns.”
Equicapita believes that there are compelling reasons for making private equity investments in the Canadian SME market which is experiencing one the largest generational transfers of wealth as boomer entrepreneurs retire and sell their businesses. The investment has a number of key drivers including:
- Generational opportunity to acquire “baby boomer” SMEs: There is a demographic opportunity to capitalize on the accelerating turnover of baby boomer owned, western Canadian SMEs. According to CIBC “An estimated $1.9 trillion in business assets are poised to change hands in five years — the biggest transfer of Canadian business control on record.”
- Attractive target market: There is a private equity funding gap in the $2 to $20M range is often referred to as the “Nano Gap.” This creates an attractive environment to acquire low cost, stable cash flow streams.
- Valuations: Current trailing cash flow valuations are artificially low, incorporating weak 2008-10 operating results post credit crisis.
- Buy and hold strategy: Equicapita does not use a traditional PE business model: acquisition, aggressive expansion capital, followed by exit. Equicapita’s business strategy is to acquire and hold mature, long-standing enterprises at reasonable valuations.
This news release may contain certain information that is forward looking and, by its nature, such forward-looking information is subject to important risks and uncertainties. The words "anticipate," "expect," "may," "should" "estimate," "project," "outlook," "forecast" or other similar words are used to identify such forward looking information. Those forward-looking statements herein made by Equicapita, if any, reflect Equicapita's beliefs and assumptions based on information available at the time the statements were made. Actual results or events may differ from those anticipated or predicted in these forward-looking statements, and the differences may be material. Factors which could cause actual results or events to differ materially from current expectations include, among other things: risks associated with the ownership and operation of businesses, including fluctuations in interest rates; general economic conditions; supply and demand for businesses; competition for available businesses; changes in legislation and the regulatory environment; and international trade and global political conditions. Readers are cautioned not to place undue reliance on any forward-looking information contained in this news release (if any), which is given as of the date it is expressed herein. Equicapita undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise.