How to build a debt portfolio today

Key portfolio construction priorities come to light in conversation with a Canadian investor.

In the latest issue of Private Debt Investor, we catch up with Jennifer Hartviksen, who was brought on board by Canada’s Investment Management Corporation of Ontario last year to build a global credit portfolio from the ground up. The interview provides some revealing insights into how LPs might go about the task of portfolio construction if they were beginning it today.

One thing that comes over loud and clear is that there is no truck given to the siloing of different credit strategies. Essentially, all debt is welcome in IMCO’s big tent – be it public debt, private debt, corporate debt, infrastructure debt or any other assorted flavour. According to Hartviksen, it’s a way of trying to ensure that good opportunities don’t fall between the cracks of overly strict strategic categorisations.

She cites capital solutions as one strategy that might otherwise suffer this fate, a holistic type of financing package that may suit a borrower with particular strategic objectives in mind, such as M&A opportunities, or may be chosen by a borrower that wants only one lender for reasons of cohesion or confidentiality. The myriad of approaches under the strategic umbrella of “dislocation” – so popular in the wake of peak covid disruption early last year – also come to mind in this context.

What the dislocation phenomenon brought to the private debt lexicon was the word “pivot” – in this case, the ability for managers and investors to pivot between the public and private markets to take advantage of the best risk/return opportunity at a given time. There was a period in the early months of last year where public debt clearly offered a compelling short-term risk-return profile – since arguably superseded by the private markets. This maneuverability is crucial for LPs like IMCO today.

The interview also includes interesting reflections on fund manager selection. Unsurprisingly perhaps, for an investor like IMCO with an ecumenical outlook, managers with broad platforms offering multiple different strategic approaches are favoured. Not surprising also is IMCO’s intention to internalise the investment process, at least to a degree, and thereby avoid shelling out excessive fees – for an investor carving out a distinctive methodology, that at least is one ambition it shares with a great many others.

Write to the author at andy.t@peimedia.com