IMCO Invests Half a Billion With Ares to Scale its Global Credit Portfolio
IMCO put out a press release on the deal:Investment Management Corp. of Ontario, a money manager for pension funds in the Canadian province, has committed US$500 million to Ares Management Corp. as it looks to boost its higher-yielding credit operations.
The pension fund said it’s investing US$400 million to a customized portfolio, with the goal of capitalizing on Ares’s all-weather approach, taking advantage of opportunistic dislocations and market inefficiencies. The remaining US$100 million will be allocated to the flagship Ares Pathfinder fund.
“Ares can offer us, over time, high yield, leveraged loans, structured credits, and then into the private credit space, middle-market lending. They have the ability to provide capital to parts of the market that are in dislocation,” Jennifer Hartviksen, managing director for global credit at IMCO, said in an interview.
Hartviksen was brought in from Invesco Ltd. last year to build out IMCO’s global credit strategy, which currently invests in corporate bonds, real estate, infrastructure, emerging markets, structured and off-balance-sheet products such as loans backed by intellectual property to generate higher risk-adjusted returns. She said that by investing through Ares, the pension fund will have the ability to move between different segments as the opportunities present themselves.
“We view them as a foundational block of the credit strategy as we built it out,” Hartviksen said. “A platform partner that will provide a customized credit strategy in a fashion that is cost-effective and allows us to really leverage their scale and get the efficiencies that come with that.”
Last May, the pension fund committed US$250 million to a dislocation fund by Apollo Global Management Inc. focusing on bonds and loans that had fallen because of liquidity-driven selling rather than for economic reasons. Imco has closed its investment with Apollo after getting the expected returns, she said.
The pension manager for government workers in the Canadian province manages $73.3 billion in assets. It plans to boost its $4.6 billion credit portfolio to at least $8 billion over the next four years.
“It’s a combination of growing the assets under management and also repositioning into something that is more global and more diversified,” Hartviksen said.
IMCO was created less than five years ago to consolidate several public-sector funds under one manager. It’s still in the process of building its investment team and diversifying the assets it inherited.
The pension manager for Ontario posted an overall gain of 5.4 per cent for 2020. The credit portfolio returned almost twice as much at 10.6 per cent.
The Investment Management Corporation of Ontario (“IMCO”) has closed its commitment with a new strategic partner, Ares Management Corporation (“Ares”) (NYSE: ARES). IMCO’s US$500-million commitment to Ares (the “Fund”) will provide its Global Credit asset class timely access to an actively managed, diversified multi-strategy credit portfolio. IMCO has allocated US$400 million of its US$500-million to a Fund of One structure and US$100-million to Ares Pathfinder Fund, L.P. (together with its parallel vehicles, “Pathfinder”), a flagship global alternative credit fund. Pathfinder pursues a differentiated strategy of providing tailored financial solutions for owners of large, diversified portfolios of assets that generate predictable and contractual cash flows throughout market cycles.“Ares’ 20-plus year track record, depth and breadth of capabilities and expertise across asset classes represents the kind of strategic partner we want as we grow our Global Credit portfolio,” said Jennifer Hartviksen, Managing Director, Global Credit, IMCO. “IMCO’s strategic partnership with Ares is well-aligned with our diversification strategy and enables our clients to gain global access to a wide spectrum of credit products and markets—both liquid and illiquid, public and private.”
Ares is a leading global alternative investment manager operating integrated groups across Credit, Private Equity, Real Estate and Strategic Initiatives. With approximately 1,100 institutional investors, Ares manages capital for a variety of pension funds, sovereign wealth funds, university endowments, charitable foundations, financial institutions, and family offices. Pathfinder invests in alternative credit assets that are often sourced in the financing gaps found between the credit, private equity and real estate sectors.
“We are very excited to partner with IMCO and leverage our credit market leadership position to manage this strategic mandate,” said Michael Arougheti, Chief Executive Officer and President of Ares. “We designed this customized solution together with the goal of capitalizing on our all-weather approach to take advantage of opportunistic dislocations and market inefficiencies. We believe that this will provide IMCO with the flexibility to achieve their clients’ risk-reward objectives across both public and private markets.”
“The COVID-19 pandemic has exposed financing gaps in public credit segments for hard hit sectors seeking to address long-term solvency challenges,” added Hartviksen. “IMCO’s US$400-million commitment to the Fund of One, and our US$100-million commitment to Pathfinder positions us well to quickly respond to the demand for more bespoke capital solutions created by the current market and economic environment.”
Created as a separate asset class in 2020, IMCO’s Global Credit portfolio invests across a range of public and private credit market segments including corporate, real estate, infrastructure, emerging markets, structured and IP royalties to generate higher risk-adjusted returns than traditional fixed income and additional diversification benefits to a total portfolio for Ontario public sector fund clients. The Global Credit team is differentiated by its cross-functional expertise, and clients and partners benefit from close internal coordination among IMCO’s public equities and private equity teams. As of December 31, 2020, IMCO’s Global Credit portfolio had CAD$4.6-billion AUM. The portfolio is expected to grow to CAD$8-billion or more by 2025.
ABOUT IMCO
The Investment Management Corporation of Ontario (IMCO) manages $73.3 billion of assets on behalf of its clients. IMCO’s mandate is to provide broader public sector institutions with investment management services, including portfolio construction advice, better access to a diverse range of asset classes and sophisticated risk management capabilities. IMCO is an independent organization, operating at arm’s length from government and guided by a highly experienced and professional Board of Directors. Follow us on LinkedIn and Twitter @imcoinvest
ABOUT ARES MANAGEMENT CORPORATION
Ares Management Corporation (NYSE: ARES) is a leading global alternative investment manager operating integrated groups across Credit, Private Equity, Real Estate and Strategic Initiatives. We seek to provide flexible capital to support businesses and create value for our stakeholders and within our communities. By collaborating across our investment groups, we aim to generate consistent and attractive investment returns throughout market cycles. As of March 31, 2021, Ares Management’s global platform had approximately $207 billion of assets under management with more than 1,450 employees operating across North America, Europe, Asia Pacific and the Middle East. For more information, please visit www.aresmgmt.com.
This is another huge deal for IMCO's Global Credit team.
Christian Hensley is Senior Managing Director, Equities and Credit. He oversees IMCO’s private equity, public equities and global credit programs, which are executed both internally and through external managers. He is particularly focused on creating organizational partnerships and sourcing new opportunities to generate long term value for clients.
Jennifer Hartviksen joined IMCO in 2020, she reports to Christian and is responsible for the global credit asset class, a globally diversified portfolio of public and private credit assets across the risk spectrum.
Ms. Hartviksen put this deal together with Ares, one of the best alternative asset managers in the world.
IMCO's press release states:
IMCO has allocated US$400 million of its US$500-million to a Fund of One structure and US$100-million to Ares Pathfinder Fund, L.P. (together with its parallel vehicles, “Pathfinder”), a flagship global alternative credit fund. Pathfinder pursues a differentiated strategy of providing tailored financial solutions for owners of large, diversified portfolios of assets that generate predictable and contractual cash flows throughout market cycles.
The Bloomberg article states that IMCO is investing US$400 million to a customized portfolio, with the goal of capitalizing on Ares’s all-weather approach, taking advantage of opportunistic dislocations and market inefficiencies. The remaining US$100 million will be allocated to the flagship Ares Pathfinder fund.
So, the way I read it, IMCO is committing US$400 million to a customized/ bespoke/ segregated portfolio where it pays reduced fess and US$100 million will be allocated to the flagship Pathfinder fund where it pays full fees like all the other investors in that fund.
It makes sense because IMCO plans to boost its $4.6 billion credit portfolio to at least $8 billion over the next four years.
To achieve that scale, an extra $3.4 billion, IMCO needs to allocate significant commitments to credit funds.
Recall, it was exactly one year ago where I wrote about IMCO's big stake in Apollo's credit fund when it committed $250 million to that fund.
This latest deal with Ares is for twice that amount but it is structured in a way to invest one fifth in Ares's flagship Pathfinder fund and the rest in a segregated account (to reduce overall fee drag).
Jennifer Hartviksen, managing director for global credit at IMCO, said in an interview to Bloomberg: “Ares can offer us, over time, high yield, leveraged loans, structured credits, and then into the private credit space, middle-market lending. They have the ability to provide capital to parts of the market that are in dislocation.”
Again, Ares is a well known alternative investment fund that has extensive experience in credit:
We are experienced credit evaluators who take a value-oriented approach, using fundamental bottom-up research to identify investments that offer attractive relative value in comparison to their fundamental credit risk profile.
Our portfolio managers average approximately 24 years of relevant experience investing in liquid credit, in many cases since the inception of either the leveraged loan or high yield asset class. As a long-term, patient direct lender, we leverage our flexibility, structuring expertise and self-origination capabilities to invest across capital structures and meet the full spectrum of our clients’ financing needs. Members of our direct lending and alternative credit investment committees average approximately 27 years of relevant middle-market lending, leveraged finance, and asset-focused investing experience.
Our investment solutions help traditional fixed income investors access the syndicated loan and high yield bond markets and capitalize on opportunities across traded corporate credit. We additionally provide access to directly originated fixed and floating rate credit assets and the ability to capitalize on illiquidity premiums across the credit spectrum. Our strategies include syndicated loans, high yield bonds, multi-asset credit, alternative credit investments and U.S. and European direct lending.
I am bringing this up because when IMCO is investing $250 million with Apollo or $500 million with Ares, it's building solid long-term partnerships with best of breed credit funds.
As Jennifer Hartviksen told Bloomberg: “We view them as a foundational block of the credit strategy as we built it out, a platform partner that will provide a customized credit strategy in a fashion that is cost-effective and allows us to really leverage their scale and get the efficiencies that come with that.”
When you're the size of IMCO and growing fast, you can pretty much build a solid credit platform with the best funds in the world and reduce the fee drag through segregates accounts that are customized to its risk and diversification needs.
Of course, Ares is only too happy to partner up with a sophisticated pension like IMCO:
“We are very excited to partner with IMCO and leverage our credit market leadership position to manage this strategic mandate,” said Michael Arougheti, Chief Executive Officer and President of Ares. “We designed this customized solution together with the goal of capitalizing on our all-weather approach to take advantage of opportunistic dislocations and market inefficiencies. We believe that this will provide IMCO with the flexibility to achieve their clients’ risk-reward objectives across both public and private markets.”
And there will be plenty of opportunistic dislocations and market inefficiencies in the environment we are in, something Jennifer Hartviksen touched upon in the press release:
“The COVID-19 pandemic has exposed financing gaps in public credit segments for hard hit sectors seeking to address long-term solvency challenges,” added Hartviksen. “IMCO’s US$400-million commitment to the Fund of One, and our US$100-million commitment to Pathfinder positions us well to quickly respond to the demand for more bespoke capital solutions created by the current market and economic environment.”
She's spot on and this is a great deal for IMCO and its members, a partnership with a premiere fund that will prove very beneficial over the long run.
Note, Ares operates complementary investment groups that invest in the credit, private equity and real estate markets with the ability to invest in all levels of a company’s capital structure — from senior debt to common equity.
I wouldn't be surprised if IMCO invests in other funds of theirs just like other large Canadian pensions but I am focusing on the credit deal here because it's a huge deal.
Below,IMCO is committing US$500 million to its new partnership with Ares Management. Christian Hensley, senior managing director of equities and credit at IMCO, discusses the company's new partnership with Ares and the strategy behind the move (watch it here if it doesn't load below).
Great interview, Christian explains this investment and their customized mandate looking at opportunities across the credit spectrum.
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