In Signs of Change, CPPIB Goes for Growth

(September 4, 2009) – The Canadian Pension Plan Investment Board (CPPIB), in a move that may indicate changes in the Canadian institutional space, has made a move into more risky investments with its recent joint purchase of Internet communications firm Skype.

The purchase, worth $1.9 billion in total and $300 million for the CPPIB, has been done with Silver Lake Management and two U.S.-based venture capital firms. eBay, the seller, will retain a 35% share in the Internet company; the CPPIB will have a 15% stake.

The move may well represent an important change in the usually staid Canadian pension investment world. While long players in infrastructure investment, Canadian pensions—with the $120 billion CPPIB at the forefront—have rarely entered into the venture capital or high-growth space, instead often looking to buy controlling stakes in hard-asset projects.

“This is not your typical 1999-2000 dot.com deal,” Mark Wiseman, head of buyouts at CPPIB, told Canada’s The Globe and Mail. According to Wiseman, the move does mark a distinct shift away from the utilities and railroads that the fund usually dabbles in, but is a “natural evolution” for a fund looking to diversify its portfolio. Parrying worries that the move is too different from past CPPIB actions, Wiseman is quoted as saying: “This is an established brand with somewhere close to half a billion users globally. It’s one of the foremost names on the Internet and the foremost name in online communications, with real cash flows and very real earnings.”

Because the CPPIB is considered the leader in Canadian pension management, such a move is likely to raise speculation that Canada’s defined benefit public pension system—which represents well more than half a trillion dollars—will be more willing to enter “riskier” and higher-growth areas.