Private debt, the last bastion of alternative assets, gains a new management entrant

The world of private debt investing — a world that offers higher returns compared with what’s available in the public markets — has become a little more crowded.

“It validates what we have been doing,” said Theresa Shutt, chief investment officer of the private debt group at Integrated Asset Management. That firm started three decades back as an agent in private debt investing before switching, a dozen years back, to being a principal and investing on behalf of institutional investors.

“Private debt is the last bastion of alternative assets,” notes Shutt, whose firm invests in investment grade, senior secured loans issued by mid-market companies. Typically such investments run for  five to 10 years with each investment in the $20 million range.

As for the validation, Shutt was referring to CIBC Asset Management’s decision to launch a long-term private debt pooled fund. That product, geared to institutional investors, will invest in unrated private securities issued by companies in the infrastructure and power sectors.

Those sectors weren’t chosen at random. “Infrastructure investing is about seeking stable returns through contracted cash flows while minimizing management and operational risk,” CIBC said at the time.

Carlo DiLalla, vice-president, client portfolio manager at CIBC Asset Management, said the new fund is aiming to invest $500 million to $700 million annually in 10 to 15 projects, the bulk of which will be in private P3’s, investments with terms of 25 to 30 years. The product is intended “to be another tool for pension plans to use for their asset portfolio. They have long term liabilities so need assets that are also long term.”

And compared with public market investments, investors will receive a higher coupon, and “better structured cash flows to meet those needs,” said DiLalla, noting the investments aren’t liquid and are meant to be held to maturity. For investors, the yield is expected to be in the 4-per-cent to 4.5 per-cent-range. “It’s a pickup for a pension fund which is replacing some of its existing fixed income.”

In March 2016, TD Asset Management unveiled its entry into the world of private debt with the launch of two new funds – a Private Debt Pooled Fund Trust and Long Private Debt Pooled Fund Trust. At the time, TDAM said the funds “offer a comprehensive yield-enhanced, investment grade fixed income alternative for today’s low interest rate environment.”

In late 2014, Sun Life formed Sun Life Institutional Investments to offer external institutional clients some of the investment management capability t it had been using to manage its own investments. Three of those products were for private debt.

In late 2013, Manulife Financial expanded its third-party private asset management business. Known as Manulife Asset Management Private Markets, the unit was formed to offer institutions, specialized private asset investment teams that historically had primarily served Manulife’s corporate account.

Until the four institutions arrived with a private debt offering, IAM was the granddaddy of private debt investing. Since 2005 it has raised through five funds $2.7 billion from institutional investors and has invested $1.7 billion in 90 mid-sized Canadian companies. One year back it raised, for the first time, an infrastructure fund.

Shutt said the banks are the main competitors IAM faces in its market segment. “We can offer a longer maturity, more customization which means we can beat them. And we can get a higher coupon.”

So why is private debt in demand? For starters, it’s part of investors’ ongoing search for yield enhancement in a low interest rate world. Also there’s a growing acceptance with illiquid asset classes, and there’s the drive for diversification given the large share of public corporate bonds accounted for by banks and energy companies.

Financial Post

bcritchley@postmedia.com

Former legal assistant at prominent Bay Street law firm at centre of insider tripping and trading case

A former legal assistant at prominent Bay Street law firm Davies Ward Phillips & Vineberg LLP has been caught up in accusations of insider tipping and trading.

The Ontario Securities Commission accused Donna Hutchinson, on Friday, of passing on “material, non-public information” she learned about pending corporate transactions as a result of her employment at Davies.

The same law firm was in focus during another high-profile insider tipping and trading case that concluded in 2015, in which former Davies senior partner Mitchell Finkelstein was found to have passed insider information about pending deals to a longtime friend who worked at a brokerage.

The cases aren’t connected, and, while Davies was involved in the transactions detailed in the OSC’s 14-page statement of allegations filed Friday in connection with the new case, the firm isn’t named in the document.

An OSC spokesperson said that is because the law firm is not a “respondent” – an accused person or entity — in the case.

Davies was “recently” informed of the allegations against the former employee, who was immediately terminated, the law firm said in a statement issued Friday.

“We have reviewed the allegations and have concluded that they are isolated to actions allegedly taken some time ago by a legal assistant in flagrant breach of our policies on confidentiality,” said the statement sent on behalf of managing partner Shawn McReynolds.

“Davies demands and expects that its personnel will at all times adhere to the highest legal, professional and ethical standards… We will tolerate no breach.”

Hutchinson is accused of tipping, while three others named are accused of insider trading. Cameron Edward Cornish, David Paul George Sidders, and Patrick Caruso are alleged to have made profits of more than $2 million from their trades with knowledge about pending deals.

The firms involved in the transactions Hutchinson is alleged to have learned about while working at Davies include Quadra FNX Mining Ltd., Rainy River Resources Ltd., Osisko Mining Corp., Allegan Inc., Tim Hortons Inc., and Extreme Drilling and Coil Services Corp.

In some cases, the firms retained Davies, while in others the law firm was acting for another party in the transaction.

The first hearing in the matter is to take place at the OSC’s headquarters in Toronto on Oct. 24.

None of the allegations have been proven.

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