Canada Pension Plan Investment Board, the country’s biggest public pension manager, joined a venture formed by KKR & Co. and Stone Point Capital LLC to manage and underwrite debt and equity deals.
CPPIB Credit Investments Inc., a unit of the Toronto-based pension manager, will add $50 million to the $300 million committed by New York-based KKR and Stone Point last year to support the business, MerchCap Solutions LLC, the companies said today in a statement. CPPIB plans to invest as much as $2 billion in middle-market debt deals arranged by the venture.
“We’ll be able to see the pipeline of opportunities and, from our perspective, we’ll be able to decide whether we want to underwrite various transactions,” Mark Jenkins, CPPIB’s head of private debt, said in a telephone interview. “The real issue on the origination side has been it takes a lot of feet on the street to find those middle-market opportunities,” said Jenkins, who defined middle-market companies as having about $50 million or less of earnings before interest, taxes, depreciation and amortization.
KKR and Greenwich, Connecticut-based Stone Point committed $150 million each to back the venture, continuing a strategy of diversification away from leveraged buyouts. KKR in 2006 hired Citigroup Inc.’s Craig Farr to create an underwriting business for the firm’s own holdings. Farr extended those services to non-KKR companies as Wall Street banks wrestled with heightened regulations in the wake of the 2008 global financial crisis.
Large banks “have moved away from smaller buyouts, smaller sponsors, because of the pressures of the financial-services model in today’s world,” Farr said in a phone interview. “They’ve been focusing on much larger, more transactional situations where they have repeat business from clients, and that’s what’s really opening up the opportunity for us.”