When Michael Nobrega talks about the cash crunch facing governments around the world this year, he sees big potential where others see financial crisis.
As chief executive of the $54 billion Ontario Municipal Employees Retirement System, or OMERS, Nobrega sees a golden opportunity as cash-strapped jurisdictions in Europe and the United States struggle to fund projects.
“We tend to strive a great deal when the markets are down because the opportunities are greater,” Nobrega said in year-end interview.
But even as he talks of “three or four” mid-sized deals OMERS is mulling in Europe, he admits he frets about the monthly liabilities the fund faces as its 400,000 members retire.
Keeping the fund growing while members draw out pensions has pushed OMERS to explore funding ignored by Canadian peers such as the Ontario Teachers’ Pension Plan, boosting voluntary contributions and selling investment expertise to smaller funds.
It’s a strategy that Nobrega hopes will allow OMERS to punch above its weight, but one that experts also say may detract from the fund’s primary focus.
“Trying to manage third-party money is really a recognition that their fund size is tapering off,” said John Ilkiw, a pension expert with Paros Consulting and a former senior vice-president at the Canada Pension Plan Investment Board.
“That’s a risky strategy in my view - that’s not to say it can’t work, but you’re trying to be all things to all people.”
But Nobrega, a partner at an international accounting firm before launching OMERS’ Borealis Infrastructure group in 1998, believes the strategy is critical to his goal of expanding OMERS to about $90 billion five years from now, even as he contemplates his own departure in the next two or three years.
GOING AFTER THE DEALS
OMERS is no stranger to foreign dealmaking. In 2011, it bought V. Group, a Scottish shipping services company for $520 million US and partnered with Berkshire Partners to buy Husky International, a Canadian injection molding company, for $2.1 billion, just to name two.
With huge internal teams focusing on real estate or infrastructure deals, OMERS researches a steady stream of potential investments. It may prefer friendly takeovers but will play hard for the right asset when the price is right.
“Some of these deals we may research for a year and a half before we attack,” Nobrega said.
The 2008 Teranet deal is a case in point. OMERS had considered buying Ontario’s monopoly provider of electronic land registration services for 2-1/2 years before bidding. Rebuffed, Nobrega refused to walk away, and ultimately Teranet shareholders accepted a $1.6 billion offer.
In the near term, OMERS is looking for deals in the western Canadian provinces of Alberta and Saskatchewan, where resource wealth is fueling growth and demand for roads and hospitals. In Western Europe, where the sovereign debt crisis may keep local players sidelined, there will also be opportunities.
“Having troops on the ground that we have now gives us a real advantage in that area - in the mid-sized deals in private equity,” he said, noting that OMERS staff in London speaks seven languages, the better to win bids across the EU zone.
But Nobrega pledges to be selective.
“We don’t win more than maybe 35% of our cases because if you win everything you’re probably paying extreme retail,” he said.
(Editing by Frank McGurty and Rob Wilson)