The Ontario Municipal Employees Retirement System (OMERS) has decided to revamp its private equity strategy by halting direct investments in Europe and reintroducing fund investments.

Tired of fees charged by outside managers, many limited partners have prioritized fee-free co-investments and have worked to build out their in-house direct investment capabilities.

OMERS Private Equity had gone a step further. Rather than a mix of strategies, it opted to halt outside buyout allocations entirely. The platform has focused exclusively on direct investments and grown to a team of more than 50 investment professionals spread across offices in Toronto, London, New York, and Singapore.

Now, OMERS plans to pivot its European exposure by returning to investments alongside partners and through outside managers. OMERS had already shuttered its European venture operations last August.

Part of a broader restructuring of the fund's operations, the move coincides with a series of leadership changes.

Jonathan Mussellwhite, who led Europe private equity, left earlier this month. Michael Graham, OMERS' Global Head of Private Equity, is now set to retire in early 2025 and won’t be replaced after his departure.

Eric Haley, the current head of North America private equity, will assume the role of Head of Private Equity, Buyout, which will focus primarily on North America instead of its current global scope.

Concurrently, OMERS is forming a new Private Capital group to oversee various private markets activities, including venture capital, growth equity, greentech, life sciences, and European and Asia-Pacific private equity.

Private Capital will also hold a new global funds strategy and will begin making allocations to outside managers.

OMERS has not provided specific reasoning for its private equity rework, but it may feel that it's now had enough time to evaluate the global direct-only approach over the full investment lifecycle.

OMERS closed its first European direct buyout in 2011. At the time, opinions were split over whether pension fund direct investments would eventually put private equity—to some, an expensive, opaque, and commoditized service—out of business, or whether limited partners would fall flat without the institutional knowledge and talent of seasoned managers.

Reporting on the industry's reaction to OMERS’ European entrance, London's Financial News wrote: "A number of dealmakers have told us that a move to an in-house team at a pension fund didn't sound like the most attractive proposition as the pay is often lower than at their private equity brethren."

The fund’s private equity strategy manages around C$20 billion and delivered a 3.9 percent net return in 2023 against a benchmark of 9.6 percent. Performance was blamed on a challenging macro environment and weaker-than-expected EBITDA growth across the portfolio. The fund also took a valuation hit on its venture and growth-stage assets, as well as what it called "operational underperformance" in the early-stage portfolio.

It's been a relatively turbulent decade for the fund as a whole — across all strategies, OMERS has consistently lagged behind its peers. A dismal 2020 (-2.7 percent) saw it trail other Canadian pension funds by as much as 14 percentage points and led to a request for an independent program review from its member union.

Alongside the more logical pros and cons of pension fund investment choices, there's probably also something to be said for the 'CYA' effect of outside managers. One is presumably less likely to get fired if they can pin the blame for a bad year on a basket of household buyout names vs. having to explain to constituents the decision to sink their retirement funds into a cinema business on another continent (as was the case with OMERS' acquisition of U.K.-based Vue Entertainment, purchased for £1 billion in 2013 and then handed over to lenders in 2022).