Big Six bank broadens offering as alternative asset class sees tailwinds into 2023
CIBC Asset Management is broadening a strategic partnership to extend its reach into the alternative investments market.
Under the expanded relationship with Ares Management Corporation – which currently sub-advises the Renaissance Floating Rate Income Fund – the Big Six bank subsidiary will offer clients exposure to investment strategies in international private credit markets.
David Scandiffio, president and CEO, CIBC Asset Management, said: "Investors are seeking alternative opportunities beyond traditional publicly traded securities and private credit offers diversification, insulation from market volatility and an attractive yield premium to publicly traded securities.
"We are very excited to expand our already successful strategic relationship with Ares and provide our clients with the opportunity to invest in globally-leading private credit strategies."
Through the expanded strategic relationship, select CIBC Asset Management funds will make investments totaling about $400 million in private credit vehicles managed by Ares, mostly geared toward direct lending.
In addition to offering investment options in a diverse portfolio of directly originated private loans to middle market companies, CIBC Asset Management expects this will offer a competitive yield premium over publicly traded debt securities to its investors.
CIBC Asset Management also plans to introduce Canadian products for clients to access Ares-sponsored "evergreen" investment vehicles. Through these products, institutional and high-net-worth clients will be able to invest with a renowned worldwide private credit investment manager.
The strategic partnership may also enable Ares to make its different investment strategies available to Canadian investors via CIBC Asset Management.
The partnership with CIBC comes as private credit is forecast to experience positive growth through 2023.
According to BlackRock, because of higher rates, wider spreads, and larger call protections, the risk-return profile of private lending may be more appealing than ever.
In a report titled “2023 Private Markets Outlook: A New Era for Investors,” the asset management giant said that although private credit has increased because of banks' withdrawal from lending, largely due to regulatory changes, businesses are still in need of financing and are increasingly turning to private lenders.
“While there’s the risk of higher default rates, that can be mitigated through disciplined investment selection and deal structuring, which is easier in private arrangements and can provide opportunities for rescue financing,” added the report.
Because they can typically pass on more cost increases to customers while maintaining profitability and have lower loan-to-value ratios, non-cyclical businesses like those in the healthcare, software, technology, consumer goods, and business services are seen by BlackRock as being better insulated from inflationary pressures.
“In opportunistic credit, investors are increasingly able to extract more equity participation from companies who prefer credit to raising dilutive down rounds of equity capital,” said BlackRock.
