Quebec’s $295 billion pension manager is planning to place bigger bets on corporate credit — and hire more people to do it — after last year’s correction made loans and bonds look “extremely attractive,” its chief executive officer said.
(Bloomberg) — Quebec’s $295 billion pension manager is planning to place bigger bets on corporate credit — and hire more people to do it — after last year’s correction made loans and bonds look “extremely attractive,” its chief executive officer said.
The Caisse de Depot et Placement du Quebec reported its first investment loss since the 2008 financial crisis, as its huge fixed-income portfolio dropped 15% because of inflation and rising interest rates. It was the worst environment for bond investors in decades, but the selloff means valuations are finally appealing after a long period of low rates, CEO Charles Emond said in an interview.
“It’s a portfolio for which we have a lot of appetite,” he said. “When you think that depositors need an average of 6% per year, then it’s time to deploy in your credit portfolio.”
The Caisse manages C$402 billion ($295 billion) for dozens of entities in the Canada’s second-largest province, including a fund that provides pensions to millions of workers. About a fifth of the portfolio, or C$84.7 billion, is in credit, a category that includes corporate bonds and direct lending.
Emond said last year’s fixed-income losses will be offset over time, as maturing loans and bonds are reinvested into instruments carrying yields as high as 8% with minimal default risk.
Seeking 15 People
The 80-person group managing the portfolio in Canada, the US and the UK is looking to add 15 more people, Emond said. The firm is focused on broad diversification within credit, allotting money to infrastructure, real estate, renewable energy, pharmaceuticals and consumer goods, among other sectors.
Read more: Private Credit Firms Are Muscling Into ABS and Consumer Lending
The fund made more than C$15 billion in private credit investments and commitments last year, including backing KKR & Co.’s buyout of French energy producer Albioma SA with a €485 million ($512 million) financing, according to a statement.
Emond was among those executives to warn in 2021 that credit markets were getting frothy as central banks kept monetary policy loose during the Covid-19 pandemic. “We’re seeing a lot of excesses right now, and it’s not going to fade away or go away anytime soon,” he told Bloomberg in an interview that September.
The fund should have an advantage in the competition for private credit, he said, because it’s large enough to originate loans directly with borrowers, allowing it to have more control over the terms.
(Updates with additional context on private credit strategy)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.