The Public Sector Pension Investment Board’s growing private debt portfolio has showed a 27.5 percent return over the one-year period ending 31 March, the firm said on Wednesday.
This represents more than double its 12.4 percent target return for the asset class, according to a statement. The one-year period – which PSP counts as fiscal year 2017 – marks the first full fiscal year that private debt platform has been in operation, the firm’s 2017 annual report showed.
The Canadian pension plan boosted its private debt assets to C$4.4 billion ($3.33 billion; €2.96 billion) by March, up from C$640 million a year prior. By comparison, PSP’s total assets under management reached C$135.6 billion, a 16.1 percent increase from C$116.8 billion in AUM a year earlier.
With 92 percent of its private debt portfolio in the US, the group committed a total of C$4 billion across 30 transactions, including investments in first and second lien term loans, unitranche term loans, secured and unsecured bonds and a credit fund.
The private debt allocation’s strong performance was due to “the ramp up nature of the asset class, which in early years enhances the impact of fee income and mark-to market gains from a return perspective”, the annual report read.
“During the first quarter of fiscal 2017 we demonstrated that the Private Debt group is willing to deploy capital in all market conditions which is another important consideration for those involved in the acquisitions finance space,” David Scudellari, senior vice president and head of principal debt and credit investments at PSP Investments, told Private Debt Investor in an email.
Other asset classes in the pension plan’s portfolio also surpassed return benchmarks over this period.
Real estate showed a one-year return of 10.8 percent, compared with its 6.2 percent benchmark. The report cited office portfolios in Paris, London and in Australia and senior retirement and healthcare portfolios in Canada and the UK for causing the allocation’s strong performance. This asset class grew slightly to C$20.6 billion in net assets, up from C$20.4 billion 31 March 2016, with nearly 43 percent of its portfolio in the US.
Infrastructure earned a 14.4 percent one-year return, well over its return target of 5.2 percent. PSP attributed the strong performance to investments in transportation, communications and renewable energy sectors, especially in Europe, which accounts for 47.1 percent of the asset class investments. This asset class hit C$11.1 billion in net assets by 31 March, up from C$8.7 billion a year prior.
In contrast with private debt, real estate and infrastructure, the firm’s private equity portfolio’s performance “remains a challenge” and was “negatively impacted by certain legacy investments in technology and communications”, the annual report read.
Private equity showed a one-year loss of 3.4 percent and only a 7.8 percent five-year annualised return. Its one-year return target is 9.3 percent. Still, the firm was able to grow this asset class by C$3.4 billion, to C$15.5 billion, as of 31 March.
The $135.6 billion PSP overall portfolio generated a 12.8 percent net return the year ending in March and five-year annualised net return of 10.6 percent, above its 9.4 percent portfolio benchmark return.