CPP board ups wager on private credit
TORONTO The Canada Pension Plan Investment Board says it’s extending a push into private credit to help fill a need for yield made scarce by low interest rates.
The nation’s biggest pension manager has increased its private debt investments from $5.1 billion in 2011, to $32.7 billion at the end of March, its annual report shows. Investments in private credit were virtually zero in 2006. The growth of its allocations in less liquid assets has borne fruit, said its senior managing director and global head of credit investments John Graham.
CPPIB, with more than $400 billion of assets, is pushing further into private debt — where borrowers bypass traditional capital markets — to make up for dwindling yields elsewhere. With concerns about a new global economic slowdown causing interest rates to plunge, and about US$15.6 trillion of global debt paying less than zero, it’s increasingly urgent for portfolio managers to find new sources of returns.
CPPIB has also boosted assets in private equity and real estate, and is looking further afield for gains, targeting growth in emerging markets and Asia.
“Getting paid for the lack of liquidity is certainly something that we’ve been very successful at in the credit side,” Graham said.
Graham currently oversees about $40 billion in credit investments, with around 80 per cent of that speculative grade.
This includes corporate, real estate and structured deals.
While it’s benefited CPPIB, Graham is cognizant of the risks, as demand leads to a deterioration in deal terms. Investors could also get saddled with losses if credit conditions sour and they can’t unload underperforming assets.
“We’re seeing less and less liquidity across the board, and in some of these markets I’m not sure if there is liquidity at all,” he said. “Whether or not it’s a big issue is going to be very institution specific.”
CPPIB returned 1.1 per cent in the quarter ended June 30, as net assets grew $8.6 billion to top $400 billion for the first time.