Hafiz Lalani of CPPIB identifies a stabilizing market and realistic valuations as key to new private equity deals
Hafiz Lalani, who leads direct investments in private companies for the Canada Pension Plan Investment Board (CPPIB), sees a “very different market” emerging this year, according to The Globe and Mail.
After two challenging years for private equity, he observes that owners are becoming more realistic about their assets' worth. Lalani notes that the rapid rise in interest rates had slowed deal-making, but the market is now stabilizing, offering new opportunities for significant returns.
Private-equity firms, under pressure to sell assets and return cash to investors, are feeling the effects of having overshot their funds' fixed terms. The predictability of interest rates and healthier financing markets, with available debt for deals, contribute to a more favourable environment for transactions.
Lalani believes these conditions make it less risky to transact and potentially achieve outsized returns compared to the past two years.
CPPIB, managing a $156bn private-equity portfolio, made notable investments in health care and technology in its last fiscal year ending in March, achieving a 9.6 percent return from private equity.
Lalani currently sees a balanced pipeline of potential acquisitions across tech, health care, industrial, and services sectors. He emphasizes the fund's intention to pursue more health care deals, feeling “underinvested” in that sector, and identifies promising prospects in software businesses.
In addition to new investments, CPPIB has sold some assets to manage its exposure to private equity. Recently, it sold a US$2.1bnportfolio of private-equity fund investments to French investment manager Ardian SAS.
Last week, CPPIB invested €550m ($815m) to buy a 20 percent stake in Belgian web hosting company team.blue, following the sale of about two-thirds of its stake in Norwegian business software company Visma for around $700m late last year.
For both investments, CPPIB partnered with Hg Capital, a London-based private-equity firm specializing in tech company buyouts in Europe and the United States, which remains the largest investor in team.blue.
Lalani highlights the importance of professional partnerships, such as the one with Hg since CPPIB's 2019 investment in Visma. This relationship provided access to the investment in team.blue and allowed CPPIB to understand the company’s value creation through its expansion.
He stresses the value of leveraging networks to identify exciting opportunities, especially when competition for deals is fierce.
CPPIB aims to stay disciplined amid increasing competition, as Lalani acknowledges the challenges of competing with top global investors.
“We’re often outbid, and that’s the nature of the industry. We feel good about our discipline – time will tell whether we were being too prudent or appropriate,” he says, reflecting on the fund's strategy in the current market.
