“Canadian Pension Fund’s Credit Chief Eyes Leveraged Buyout Opportunities”

Canada’s largest pension fund, the Canada Pension Plan Investment Board (CPPIB), is gearing up for significant growth in its credit holdings over the next five years. With plans to nearly double its credit assets to over $115 billion by 2029, CPPIB is eyeing a surge in leveraged buyouts (LBOs) to fuel this expansion.

Andrew Edgell, CPPIB’s global head of credit investments, anticipates a resurgence in the LBO market after a couple of sluggish years. He notes a palpable demand and growing optimism among sponsors, driven in part by substantial dry powder in the market.

While global mergers and acquisitions saw a rebound in the first quarter of 2024, Edgell acknowledges the lingering uncertainty surrounding interest rates as a potential obstacle to rapid dealmaking pace.

CPPIB, set to reach $1 trillion in assets by 2030, is committed to amplifying its presence in private lending, a domain already constituting a significant portion of its credit portfolio. With less than 20% of its credit assets managed by third parties, CPPIB emphasizes direct lending while nurturing partnerships with major alternative asset managers.

Furthermore, CPPIB’s engagement extends to supporting acquisitions led by prominent firms such as Blackstone Inc., Carlyle Group Inc., KKR & Co., and CapVest Partners. By leveraging its direct investment expertise, CPPIB aims to participate in sizable deals and co-investments alongside its partners.

Edgell sees the resurgence of collateralized loan obligations (CLOs) as a potential catalyst for heightened deal activity. With new-issue CLOs on the rise, Edgell anticipates an improvement in the LBO landscape.

While competition among lenders may lead to narrower spreads for issuers, Edgell emphasizes the value of long-term relationships and flexible loan terms offered by top private credit managers. He views the shift towards private credit as beneficial for capital markets, aligning assets with suitable liabilities while mitigating systemic risks.

In navigating the evolving landscape of credit investments, CPPIB remains poised to capitalize on emerging opportunities while maintaining a prudent approach to risk management.