Tapping into private markets: a response to evolving credit conditions

Marc-André Lewis spearheads the transition to a diverse and unified asset management platform

Tapping into private markets: a response to evolving credit conditions

This article was produced in partnership with CI Global Asset Management

Under the strategic vision of Marc-André Lewis, Chief Investment Officer, at CI Global Asset Management (GAM) transitioned from a boutique model to an integrated investment platform, marking a significant pivot in its approach to asset management.

The integration journey began nearly two and a half years ago, in September 2021, when CI GAM recognized the need to diversify beyond its traditional stronghold in listed markets, such as bonds and equities.

A diversification drive

This recognition was not in isolation but mirrored a broader trend observed across the institutional investment sphere in Canada, where giants like CPP and AIMCO were increasingly allocating substantial portions of their portfolios to private assets.

The persistent tightening of credit conditions, further intensified by recent disturbances in the banking sector, is increasingly pushing borrowers to seek alternatives in private credit markets.

The shift towards private equity, credit, real estate, and venture capital represented a strategic endeavor to unlock new avenues of growth and diversification, not just for CI GAM but also for its clients.

Designing new products, securing regulatory approvals, and building the infrastructure to support these investments took considerable effort and time. Lewis describes this transition as, “A lengthy journey. The bulk of the past year to year and a half was devoted to developing and starting to invest in these products. Now, we are in a position to offer them to a broader audience.

“This has evolved into a comprehensive range of asset classes, previously inaccessible to investors in the unlisted space. From a diversification standpoint, it makes considerable sense for us to broaden our business offerings and for our clients to diversify their portfolios by incorporating private assets alongside what we have been doing in the listed space.”

Criteria selection

One of the critical elements in this strategic shift was the criteria for selecting investment strategies. CI GAM's approach emphasized diversification, not just across different types of assets but also through time. This method aimed to mitigate the inherent risks associated with capital deployment in private markets, ensuring that investments were not only spread across various sectors but also structured to provide returns over different periods. This careful planning was pivotal in designing a “one ticket solution” for investors seeking exposure to a diversified portfolio of private assets.

Lewis says, “Essentially, by purchasing just one ticket, investors can access all of these asset classes. We're focused on achieving diversification across and within these asset classes.

“A unique aspect of private assets is the importance of diversification over time. Given that capital is deployed and then returned over a long period, it's crucial to diversify in such a manner to avoid having all cash flows coming in and out simultaneously.”

Regulatory insight

Regulatory considerations also played a significant role in CI GAM's strategy. The less liquid nature of private markets necessitated a nuanced understanding of regulatory requirements, which, according to Lewis, did not pose a hindrance but rather a necessary framework within which to operate responsibly.

This regulatory landscape has also been evolving, with private market investments becoming increasingly mainstream, especially in the United States. CI's anticipation of similar trends in Canada underscores its proactive approach to adapting to and shaping the investment environment.

The upcoming years are poised to be highly rewarding in terms of returns from a wide spectrum of opportunities within private markets. However, this optimistic outlook comes with a cautionary note regarding the competitive landscape.

The emergence of numerous large entities vying for market share and scale introduces a dynamic where intense competition could potentially dilute credit protections and lead to more aggressive underwriting practices.

CI GAM emphasizes a selective approach, underscoring the importance of prudent capacity management and focusing on market segments that, while possibly more complex, face less competition. This strategy is aimed at offering clients a robust value proposition, navigating the competitive pressures to tap into the most promising segments of the market.