The NWM Private Equity Limited Partnership is a combination of a fund-of-funds approach and co-investment in private equity and mezzanine financing. We are targeting to achieve a long-term annual return that is, on average, 5% better than one might reasonably expect from publicly traded equity markets.
Nicola Wealth Management Ltd. (NWM), the “Manager,” is a Vancouver-based wealth management and financial planning firm established in 1994. With a philosophy built on cash flow and diversification, our growing series of funds is managed by members of NWM’s Portfolio Management Team.
WHY CREATE A PRIVATE EQUITY FUND?
Over the years, private equity, including both buy-out and mezzanine funds, has earned risk-adjusted returns well in excess of publicly traded markets (see Net Horizon Returns 2011 chart). PE funds, specifically buy-out funds, generate excess returns by investing in private companies at a discounted valuation – sometimes at half of the multiples that publicly traded companies are valued, improving companies’ earnings by cutting costs and growing sales, using financial leverage, and then selling their stake at a premium multiple on an improved earnings base.1
Until very recently, private equity investments have been limited to either large institutional investors (such as most of Canada’s largest pension funds — see side bar) or ultra-high net worth individuals and families. Minimum investments in pools are often $5-million or more.
Tiger 21 is an investment peer group for individuals with investable assets of over $10-million. Below you can see that private equity is considered an essential asset class and part of their portfolios.
Similar to large institutional investors, we use a fund-of-funds approach, where we invest with multiple managers. We are able to reduce risk through diversification across managers, regions, and strategies, thereby increasing our coverage of different parts of the private equity asset class.
We currently invest with six managers (see Private Equity Fund Sub-Managers) and will add managers in the future. We will also make direct co-investments in private equity opportunities when they arise. Our fund allows our clients to invest as little as $25,000 while having access to the same diversification and managers that would normally take many millions of dollars.
Private equity pools are long-term in nature. Often, there are three multi-year phases: 1) investment, 2) creating value, and 3) exit. As the PE funds exit from, or sell, their investments, the proceeds are eventually returned to investors. The cycle often lasts ten years for each fund with each manager.
During the early stages of our fund, a significant portion of the assets is invested in cash and yield-generating securities as the PE fund is scheduled to draw on these commitments over several years (NWM PE LP investors are only committed to their original investment, and are not required to provide additional funding). This portion of our fund is focused on capital preservation, liquidity, and yield. Types of investments may include money market funds and mortgage funds.
Typically, investors in private equity have no liquidity or redemption options. It is our intention to diversify our investments in such a way that after a three-year investment period, an individual investor will be able to have access to partial or full liquidity for their investment on an annual basis (see LP Agreement for details and restrictions). In order to realize the best returns over time, however, the fund manager recommends that investors should have an investment horizon of 7 to 12 years in this asset class. Subject to the manager’s discretion, the fund will have periodic openings for new and existing investors who wish to add to their position.
As of July 25, 2013, NWM PE LP has committed $29 million to seven funds. A description of each of the seven funds follows.
PRIVATE EQUITY FUND SUB-MANAGERS
Northleaf Capital Partners
Northleaf is Canada’s largest independent global private markets fund manager and advisor with offices in Toronto, London (UK), and Menlo Park (California). The firm initially began in 1969 as TD Capital Private Equity Investors and was spun out of TD Bank in 2009. As at December 31, 2012, Northleaf had $4.5 billion under management and has managed more than 200 primary fund investments, secondary investments and direct co-investments, including managing and administering CPP Investment Board’s small and mid-market Canadian private equity fund investments and direct co-investments.
Northleaf Private Equity Investors V (“Fund V”) is a global private equity fund-of-funds designed to provide Canadian investors with a geographically diversified fund-of-funds portfolio made up primarily of buyout and venture capital primary fund investments and secondary investments enhanced by select exposure to direct co-investments alongside leading fund managers. The fund can invest 50-75% of its total capital in North America, 20-35% in Europe and up to 15% in Asia and the rest of the world.
The firm’s foundation was established in 1992 when Brent Belzberg founded Harrowston Inc. which was subsequently sold to TD Capital in 2001. In 2002, Brent Belzberg and Eric Berke founded TorQuest, based in Toronto. Today the firm has 12 investment professionals and is recognized as a leading private equity investment firm in the Canadian middle market.
TorQuest Partners Fund III will apply the firm’s established middle-market investment and operating strategy, targeting opportunities to partner closely with management teams of investee companies to create value through strategic change and operational improvements as well as successful integration of accretive add-on acquisitions.
Fulcrum Capital Partners
Fulcrum Capital Partners was founded as a private investment firm in 2011 when management bought the private equity and mezzanine business of HSBC Capital (Canada) Inc. after 18 years of successful operations. With offices in Vancouver and Toronto, Fulcrum provides private equity and mezzanine financing to the Canadian middle market and can address the needs of this market with diversity of financial structures and geographic coverage.
Fulcrum Capital Partners’ fourth private equity fund, PEF 2010, completed its final close in May 2012. This will primarily invest in Canadian companies that have an established track record of revenue growth or profit generation, some established success in service or product development or attractive appreciation potential. The fund will avoid start-ups or venture capital situations.
Headwater Equity Partners
Headwater Equity Partners was established in 2012 by two former experienced members of HSBC Capital Canada’s investment team, which managed private equity funds for institutional investors totaling $225-million with investments in companies across Canada and the US.
Headwater Equity Partners HEPF I is a private equity fund established to achieve significant medium and long-term capital appreciation through a diverse group of private equity investments in Western Canadian small and medium-sized companies. The investments will support succession plans, management buy-outs, growth, going-private transactions, leveraged buy-outs, acquisitions, or recapitalizations. The Fund will target the large number of private companies that are expected to come up for sale over the coming years due to succession challenges faced by the baby boomers.
Tallinn Capital began as North Point Capital in 1999 and since January 1, 2008 has operated as Tallinn Capital with offices in Vancouver and Calgary. Tallinn operates in niche areas of finance, supplementing traditional bank sources and assisting growth by providing bridge, subordinated/ mezzanine and financial restructuring loans.
Tallinn Capital Mezzanine Fund was started in October 2010 and contains a diversified pool of mezzanine loans. The fund focuses on: providing bridge loans to junior oil & gas companies with existing production; and growth and acquisition loans to private, growing, mid-market companies who have solid management teams and competitive advantages. It lends in selective industry sectors such as oil & gas production, service, distribution/ transportation, asset-backed and CCAA/receivership in Western Canada.
Longbow Capital Inc. is a private investment management company based in Calgary that invests in small and mid-cap oil and natural gas companies predominantly focused in Western Canada. Longbow’s strategy for success is to maintain a disciplined investment focus and be a long-term strategic partner and an engaged and effective shareholder in a small number of high-growth investments.
Longbow Capital LP #20 will predominantly invest in the common equity of early stage Canadian private oil and natural gas companies run by experienced management teams with a track record of growing shareholder value.
Brookfield is one of the largest investors in and operators of infrastructure, well-positioned to capitalize on large, multi-faceted opportunities. The firm has $39-billion of infrastructure AUM with over 100 professionals in 13 offices on 4 continents. It has invested over $10-billion of equity capital in the infrastructure sector in over 50 transactions over the past decade alone. Brookfield has achieved a 33% gross IRR since 1999.
Brookfield Infrastructure Fund II (BIF II), a target $5 billion fund that will be Brookfield’s flagship private infrastructure fund with Brookfield or its affiliates committing at least 50% of total commitments or $2.5-billion as principal investor.
Disclosure: This is a summary only, this is not intended as an offering document. Please see Limited Partnership Agreement for details. Please refer to the “Disclosure of Risks” document for an outline of risks, and additional details and important disclosure information.