Caisse de Depot et Placement du Quebec diversified its C$89.5 billion ($70.8 billion) fixed-income allocation to focus more on return generation, specifically in private credit and specialty finance.
Montreal-based Caisse, which manages C$270.7 billion in Quebec public pension and other assets, in January split its fixed-income allocation, 33% of total assets, to a C$43.5 billion credit portfolio, which targets higher returns, and a C$37.6 billion rates portfolio to provide client liquidity, said James B. McMullan, senior vice president, corporate credit. The remainder is in other fixed-income investments.
"The issue we've been grappling over the past couple of years has been diminished overall returns," said Mr. McMullan. "We asked if there was a different way to think about our portfolios. We looked for other unused, new segments on the investment spectrum to take into account our clients' long-term needs. We used to have one basic fixed-income portfolio, largely corporates, but in the last eight to 10 years, we were allowed to invest in private opportunities."
While the rates portfolio consists mostly of government securities like U.S. Treasuries and Canadian government bonds with little or no risk, the credit portfolio has four divisions, or "pillars," Mr. McMullan said:
Corporate credit (includes private debt);
Specialty finance (focuses on asset-backed securities like infrastructure debt);
Real estate debt; and
Sovereign credit (mostly government credit in countries with higher risk, like emerging markets in Latin America and Eastern Europe).
Caisse does not break out asset amounts for each pillar, but Mr. McMullan said the largest in terms of assets is corporate credit.
Canadian private credit management is mostly handled directly by Caisse staff in Montreal, but partnerships with private debt managers are used for foreign investments, Mr. McMullan said.