Penfund works predominantly with borrowers, usually with commercial goals of expansion, acquisition or recapitalization, and structures deals with intermediate and long-term loans that are sometimes mixed with equity or quasi-equity to address certain inherent risks and yield expectations. In general, debt financings (senior and subordinated) are between $1-15 million. Penfund's current portfolio stands at between 100-120 projects and a total value of around $700 million. For the most part, investee firms are medium-sized manufacturers and processors located throughout western Canadian provinces, Ontario and Quebec.
Today, Penfund's suppliers include British Columbia's OCIO, General Electric Pension Plan, HOOPP, Manitoba Teachers Retirement Board, Maple Leaf Foods Pension Plan and Ontario Hydro Pension Plan. Major decisions concerning policy and the undertaking of new loans of above $5 million are the purview of this body.Endnote 71
In its early life, beginning in 1979, the mandate of Canadian Corporate Funding Limited (CCFL) was venture and non-venture equity financing through pools that relied partially on pension funds. Since the late 1980s, CCFL has shifted to a middle market concentration. One of its functions is as an agent for medium-sized firms seeking long-term loans from institutional investors. Another is direct supply of pure subordinated debt. CCFL-expedited projects feature domestic and cross-border mergers and acquisitions, divestitures, expansions, leveraged buyouts and emerging or established firms that can or do act as leaders in specific industries.
CCFL created the first Canadian limited partnership specializing in dedicated mezzanine financing in 1989. The $155 million CCFL Subordinated Debt Fund I was capitalized by eighteen institutional investors that included the pension plans of Chrysler Canada, the University of Quebec and Cominco. This was followed, in 1997, by the $106 million CCFL Subordinated Debt Fund II. CCFL's current mezzanine group of five full- time professionals manage these pools and invest at the lower end of the middle market or deal sizes from $7.5 million to $50 million - demand that is frequently overlooked by merchant banks interested in larger projects (e.g., $50-100 million and over).Endnote 72
Since inception, CCFL has leveraged approximately $900 million in private debt placements in the middle market, of which close to one-third has been mezzanine-related. Though headquartered in Toronto, Ontario, CCFL operations are extended nationwide.
Another major syndicator of pension assets in this market is McKenna Gale Capital (Toronto, Ontario). This is a specialty manager of mezzanine and non-venture equity capital pools directed towards a wide assortment of middle market event transactions, particularly expansions, mergers and acquisitions, across the country. Although senior debt financing is not central to its mandate, McKenna Gale also possesses the capability to provide it, where necessary. Investment projects vary in size and encompass those below $50 million thereby reaching medium-sized business that might otherwise experience under-investment.
In 1996, McKenna Gale undertook its first limited partnership - the $100 million MG Stratum Fund I - facilitated by several institutional investors, including the public sector pension funds of British Columbia's OCIO and HOOPP. By the end of 1997, MG Stratum I had invested $84 million in seven medium-sized enterprises. The success of the first pool has led to commencement of a second, MG Stratum Fund II, to be capitalized to a level of $200 million.Endnote 73
Unlike venture financing which operates, in the main, close-to-home, a certain amount of international exposure can be one of the appeals of pension-backed merchant banking and other private placement activity. Several large Canadian pension funds seek the superior financial return opportunities presented in private capital markets abroad and, in particular, those situated in the United States and countries in Europe and southeast Asia.