PSP Investments' CEO on a New Partnership With AIMCo to Fund Private Loans

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James Bradshaw of the Globe and Mail reports Alberta pension manager AIMCo strikes deal with PSP after hiring away top executive:

Alberta Investment Management Corp. has struck an agreement to jointly fund private loans to companies with Public Sector Pension Investment Board after hiring away one of PSP’s top executives.

Alberta’s government-owned asset manager has hired David Scudellari to a new role as head of international investment. He joins AIMCo immediately as a senior executive managing director, reporting to chief executive officer Evan Siddall, from PSP Investments – the federal public sector pension manager.

Under AIMCo and PSP’s new loan sourcing agreement, PSP will originate private credit investments that will be funded by both pension managers, with money earmarked by each. With Mr. Scudellari’s departure, the arrangement gives PSP additional funding to take advantage of the large pipeline of deals it sources, while AIMCo gets a chance to expand its credit business more rapidly than it otherwise could.

Though large Canadian pension managers often work side by side on individual deals, AIMCo and PSP’s agreement is an example of unusually close partnership. Neither pension manager disclosed how much money each has earmarked for loans generated under the agreement. But PSP’s platform for direct private loans to companies has grown rapidly since it launched in 2015, and now manages $21.9-billion.

“I think this is a new type of collaboration,” said Deborah Orida, chief executive officer of PSP Investments, in an interview. “We already have a sophisticated credit platform that is sourcing a lot of opportunities. ... When there are some that might be bigger than we would want for our portfolio construction reasons, then we have a partner that we could bring in alongside us to co-invest.”

At AIMCo, part of Mr. Scudellari’s new job will be to improve its partnerships with external managers, as part of a strategy to gain access to a greater range of opportunities for its clients. But his main responsibilities will be leading AIMCo’s international expansion, which includes plans to open new offices in New York – which he will lead and use as his home base – and in Singapore. He will also have oversight of AIMCo’s credit and private debt divisions, and will help Mr. Siddall with leadership development within AIMCO’s ranks.

AIMCo invests for 32 pension, endowment and government funds in Alberta at arms-length from government, with more than $160-billion in assets under management.

Mr. Scudellari was previously PSP’s global head of credit and private equity, based in New York. To succeed him, PSP is promoting two executives: Oliver Duff will become global head of credit investments, and Simon Marc will be global head of private equity and strategic partnerships.

PSP Investments manages pensions for the federal public service, Canadian Armed Forces and the RCMP, with $230-billion of assets under management.

Before Mr. Scudellari joined PSP, he had senior roles at Barclays Bank PLC and Goldman Sachs Group Inc., where he worked with Mr. Siddall, and spent time in Calgary as chief financial officer of North West Upgrading Inc.

“He’s attracted to the energy around [AIMCo],” Mr. Siddall said. “We’ve recruited a bunch of different people over the last year into senior roles, and he likes what he sees.”

Most recently, AIMCo hired Marlene Puffer as its chief investment officer last month, poaching her the top job at Canadian National Railway Co.’s pension plan. AIMCo has substiantially reshuffled its senior staff, including adding Mr. Siddall as CEO in 2021, after previous leadership lost $2.1-billion on a market volatility trading strategy early in the COVID-19 pandemic.

Aside from a possible further hire to lead the new Singapore office, AIMCo’s leadership team is now set, according to Mr. Siddall. “We’re basically done,” he said.

The expansion in the United States and Singapore that Mr. Scudellari will lead is a priority because AIMCo has been “the most underrepresented internationally, the most overrepresented domestically in our portfolios,” Mr. Siddall said.

Currently, AIMCo is headquarted in Edmonton, which Mr. Siddall said will remain its home base, with offices in Toronto, Calgary, London and Luxembourg.

Opening the New York and Singapore offices is “also a way of attracting a broader talent pool, frankly,” he said.

Barbara Shecter of the National Post also reports Canadian pension giants join forces to capitalize on private credit boom:

Two of Canada’s largest pension organizations, Alberta Investment Management Corporation and the Public Sector Pension Investment Board, are joining forces to source potentially larger loan investment opportunities and expand their credit portfolios.

The joint venture was announced Jan. 9, the same day AIMCo recruited David Scudellari — a levered finance and capital markets veteran — from PSP Investments to lead the Alberta pension and endowment manager’s international investment activities.

During his seven-year stint at PSP Investments, where he was global head of credit investments and private equity and a member of the executive committee, Scudellari was credited with opening a New York office and building a global credit business with net assets under management of $21.9 billion.

At AIMCo, Scudellari will have additional duties, serving as vice-chair of the investment committee and overseeing investment functions including international expansion, credit and private debt, and management of key external relationships.

Evan Siddall, who became AIMCo’s chief executive 18 months ago, said private credit is a relatively low risk, high return asset class and a market segment where his organization has prioritized growth, notably with the latest hire.

He said Scudellari “built a leading credit investment business at PSP” and his addition will be “hugely beneficial to AIMCo,” which is plotting global expansion as well as focusing on leadership development and succession planning.

Siddall said the collaboration with PSP Investments demonstrates the collective scale and international breadth of the two pension organizations. PSP brings a larger footprint and more established track record in private credit and will source the deals, while AIMCo will contribute matching funds to give both access to larger investment opportunities.

“It’s the intensity and the scale of their business relative to ours that we can just learn from … and, with our scale, they can benefit from having our clients interested in that space too,” said Siddall. “So it’s kind of a win win.”

He has hinted in the past that partnerships and collaboration will be crucial for the Alberta pension and endowment organization, with $136.6 billion under management at the end of June, to fully participate globally in areas including energy transition and carbon reduction.

“It is absolutely part of our strategy,” Siddall said, adding that the joint venture with PSP Investments demonstrates the power of collaboration among members of the Maple 8, a term applied to a handful of the country’s largest diversified pension plans that includes the Canada Pension Plan Investment Board, the Caisse de dépôt et placements du Québec, and the Ontario Teachers Pension Plan Investment Board.

“This is a mutually beneficial endeavour,” Siddall said.

PSP Investments launched its credit investment practice in November 2015, and has $21.9 billion in net assets under management from offices in New York, London and Montreal. Its focus has been on non-investment grade credit investments in North America and Europe across private and public markets, as well as rescue financing opportunities.

AIMCo, which has private credit teams in Edmonton, Toronto and London, started investing in private credit in 2010, and manages $6.1 billion. It has committed $12.5 billion of capital since inception.

Deborah K. Orida, chief executive of PSP Investments, described the credit investment market as “fast-moving” and said the pension organization’s 40-strong team of credit investment professionals is excited to continue sourcing opportunities on their well-established platform.

“That platform has delivered double-digit returns in a historically low-rate environment since inception, so we think we’re starting from a great place,” said Orida, who became PSP’s CEO in September.

“This joint venture, or partnership, is an opportunity for us to align with a like-minded, long-term investor in Canada to have our combined funds increase our market presence.”

With the departure of Scudellari, who sources say was in contention for the CEO job that was ultimately won by Orida, PSP Investments has promoted Oliver Duff to global head of credit investments, and Simon Marc to global head of private equity and strategic partnerships, both reporting to Orida.

PSP Investments had $230.5 billion in net assets under management as at March 31, 2022, and aims to reach $300 billion.

Earlier today, AIMCo issued a press release stating David Scudellari has been appointed Senior Executive Managing Director, Head of International Investment at Alberta Investment Management Corporation:

Edmonton, Alberta – Alberta Investment Management Corporation (AIMCo) is pleased to announce the appointment of David Scudellari as Senior Executive Managing Director, Head of International Investment. He will assume his new role immediately, bringing with him more than 30 years of leveraged finance and capital markets experience across North America.

In his new role, Mr. Scudellari will act as Vice-Chair of AIMCo’s Investment Committee and oversee several key investment functions including international expansion, Credit and Private Debt, and management of key external relationships.

Mr. Scudellari joins AIMCo after seven years at the Public Sector Pension Investment Board (PSP Investments) where, as a member of the executive committee, he is credited with: opening the New York office; building a global credit business with a net AUM of $21.9 billion as at March 31, 2022, and holding the role of interim CFO before being named the Global Head of Credit Investments and Private Equity.

“David is a highly experienced investor with exceptional international perspective and a consistent track record of performance, having built a leading credit investment business at PSP. His skills will be hugely beneficial to AIMCo as we continue to grow our global footprint to extract maximum value for our clients,” said Evan Siddall, CEO of AIMCo. “In addition to leading our global expansion and third-party relationships, David will play a critical role in investment leadership development and succession planning at AIMCo, so that we can boost organizational opportunities for our employees.”

Prior to joining PSP Investments, David Scudellari held leadership roles at Barclays and Goldman, Sachs & Co., including as Global Head of Finance and Risk – Canada for Barclays in New York. He also spent two years in Calgary, where he served both as Senior Vice President and Chief Financial Officer for North West Upgrading Inc. and as a Board member at Teine Energy. Mr. Scudellari holds a Master of Business Administration from Pace University – Lubin School of Business and a Bachelor of Science in Economics from the University at Albany, SUNY.

About Alberta Investment Management Corporation

AIMCo is one of Canada's largest and most diversified institutional investment managers with more than $160 billion of assets under management. AIMCo was established on January 1, 2008, with a mandate to provide superior long-term investment results for its clients. AIMCo operates at arms-length from the Government of Alberta and invests globally on behalf of 32 pension, endowment and government funds in the Province of Alberta.

PSP Investments and AIMCo issued joint a press release on their partnership to invest in loan opportunities:

Edmonton/Montréal, Canada, January 9, 2023 – Alberta Investment Management Corporation (AIMCo) and the Public Sector Pension Investment Board (PSP Investments) announced a new commitment to invest in loan transactions sourced by PSP Investments, together positioning the organizations for stronger market presence.

Under this loan sourcing agreement, PSP Investments will source loan investment opportunities for funds earmarked by both organizations. This collaboration will allow both organizations to grow their respective credit investment portfolios.

“Backed by a team of over 40 investment professionals, PSP Investments’ Credit Investments group is a well-established platform with an excellent track-record and we are excited about continuing to source opportunities, especially in this fast-moving environment,” said Deborah K. Orida, President and Chief Executive Officer at PSP Investments.  “We look forward to collaborating with AIMCo in launching this new initiative.” 

“This collaboration with PSP Investments demonstrates our collective scale and international breadth and gives AIMCo’s clients the opportunity to benefit from this attractive asset class,” said Evan Siddall, Chief Executive Officer at AIMCo. “This is a mutually beneficial endeavor and displays the power of cooperation between two Canadian Maple 8 peers for the betterment of the Canadians each respectively serve.”

AIMCo started investing in Private Credit in 2010 and currently manages C$6.1 billion and has committed $12.5 billion of capital since inception. AIMCo’s Private Credit teams are located in Edmonton, Toronto and London.

PSP Investments launched its credit investment practice (formerly known as private debt investments) in November 2015, and manages C$21.9 billion in net assets under management. From offices in New York, London and Montréal, PSP Investments’ Credit Investments focuses on non-investment grade credit investments in North America and Europe across private and public markets, as well as rescue financing opportunities. PSP Investments’ global team invests across the debt capital structure in the form of loans, bonds and preferred equity, and balances credit quality, structure, fixed-floating deployment opportunity, risk-return profile, asset mix and portfolio diversification, among other considerations.

ABOUT PSP INVESTMENTS

The Public Sector Pension Investment Board (PSP Investments) is one of Canada’s largest pension investment managers with $230.5 billion of net assets under management as at March 31, 2022. It manages a diversified global portfolio composed of investments in capital markets, private equity, real estate, infrastructure, natural resources and credit investments. Established in 1999, PSP Investments manages and invests amounts transferred to it by the Government of Canada for the pension plans of the federal Public Service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force. Headquartered in Ottawa, PSP Investments has its principal business office in Montréal and offices in New York, London and Hong Kong. For more information, visit investpsp.com or follow us on Twitter and LinkedIn.

About Alberta Investment Management Corporation

AIMCo is one of Canada's largest and most diversified institutional investment managers with more than $160 billion of assets under management. AIMCo was established on January 1, 2008, with a mandate to provide superior long-term investment results for its clients. AIMCo operates at arms-length from the Government of Alberta and invests globally on behalf of 32 pension, endowment and government funds in the Province of Alberta. For more information about AIMCo, please visit www.aimco.ca or follow us on LinkedIn or Twitter.

PSP Investments also announced two senior executive appointments:

Montréal, Canada, January 9, 2023 – Deborah K. Orida, President and Chief Executive Officer at the Public Sector Pension Investment Board (PSP Investments), announced today, effective immediately, two new senior executive appointments to key functions supporting the organization’s global strategy.

Oliver Duff will take on the role of Senior Vice President, Global Head of Credit Investments, and Simon Marc will take on the role of Senior Vice President, Global Head of Private Equity and Strategic Partnerships.

“These appointments recognize Oliver’s and Simon’s leadership impact across the organization and leverage their deep expertise, long-term experience and global insight as we continue to achieve our strategic objectives, deliver our mandate and generate returns for contributors and beneficiaries,” said Deborah K. Orida. “As a mature organization that has successfully navigated past market volatility and complex economic cycles, PSP Investments has a track record for strong financial performance and relies on a highly capable and experienced leadership team at global and regional level.” 

Appointment of Oliver Duff as Senior Vice President, Global Head of Credit Investments

As Senior Vice President, Global Head of Credit Investments, Oliver Duff joins PSP Investments’ Executive Committee. Oliver has more than 25 years of experience in leverage finance. Previously Senior Managing Director and Global Head of Credit Investments, Oliver joined PSP Investments in September 2016 as Managing Director, Private Debt, to develop and lead the organization’s credit investments presence in Europe. Prior to joining PSP Investments, he was Global Head of Leveraged Finance and European Head of Capital Financing at HSBC Bank PLC. Oliver has previously held roles as head of loan syndicate at Morgan Stanley and Goldman Sachs and started his leverage finance career with Bankers Trust in London. Oliver is a graduate of Exeter University and is a qualified Chartered Accountant.

PSP Investments’ Credit Investments group focuses on non-investment grade credit investments in North America and Europe across private and public markets, as well as rescue financing opportunities. From offices in New York, London and Montréal, the group invests across the debt capital structure in the form of loans, bonds and preferred equity. The global team balances credit quality, structure, fixed-floating deployment opportunity, risk-return profile, asset mix and portfolio diversification. As at March 31, 2022, the Credit Investments group managed C$21.9 billion in net assets under management.

Appointment of Simon Marc as Senior Vice President, Global Head of Private Equity and Strategic Partnerships

As Senior Vice President, Global Head of Private Equity and Strategic Partnerships, Simon Marc joins PSP Investments’ Executive Committee. Simon has over 25 years of investment experience in private equity. Previously Senior Managing Director, Global Head of Private Equity, Simon joined PSP Investments in August 2015 as Managing Director, Private Equity, to develop the organization’s private equity presence in Europe and globally, opening PSP Investments’ London office in 2017 and supporting the opening of the Hong Kong office in 2019. Prior to joining PSP Investments, Simon served as Principal at Permira and Apax Partners, in addition to previous experience at Goldman Sachs. Simon is a graduate of the HEC School of Management, Paris.

The Private Equity group builds strategic relationships with external fund managers and investment partners, leveraging global networks with sector, geographic and operating expertise to source long-term co-investment opportunities. As at March 31, 2022, the Private Equity group managed C$35.4 billion in net assets under management and a diversified portfolio across North America, Europe and Asia deployed across funds and direct investments. Simon is also responsible for overseeing PSP Investments’ Strategic Partnerships team that coordinates firmwide global relationships and drives synergies with core investment and institutional partners.

About PSP Investments

The Public Sector Pension Investment Board (PSP Investments) is one of Canada’s largest pension investment managers with $230.5 billion of net assets under management as at March 31, 2022. It manages a diversified global portfolio composed of investments in capital markets, private equity, real estate, infrastructure, natural resources and credit investments. Established in 1999, PSP Investments manages and invests amounts transferred to it by the Government of Canada for the pension plans of the federal Public Service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force. Headquartered in Ottawa, PSP Investments has its principal business office in Montréal and offices in New York, London and Hong Kong. For more information, visit investpsp.com or follow us on Twitter and LinkedIn.

Let me congratulate Simon and Oliver for their well-deserved promotions at PSP.

Alright, welcome back everyone, after writing my Outlook 2023 last week on the historic and painful earnings recession that awaits us, it's time to shift my attention back to Canada's large pension funds.

If you haven't read my Outlook 2023 comment, please take the time to do so here (AQR's Cliff Asness tweeted it to his followers which is why it catapulted to the top spot on most popular blog posts on the left-hand side of my blog).

Yes, it's long and depressing but it's packed with great insights from Francois Trahan and yours truly and I embedded a lot of great interviews at the end.

This year, I am going to be a little tougher on pensions I cover precisely because the good years are over and now it's time to stop the cheerleading and patting ourselves on the back, roll up our sleeves and get to work.

That includes me too, there's going to be a lot to cover this year and risks are plentiful.

Anyway, earlier this afternoon, I got to speak to Deborah (Deb) Orida, PSP's President and CEO.

I want to thank her for taking some time to talk to me on this partnership with AIMCo and also thank Maria Constantinescu, Director of External Communications, for setting up the Teams meeting and sending me information beforehand.

I also want to thank Dénes Németh, Director of Stakeholder Relations at AIMCo for  sending me an embargoed copy of their press release announcing David’s appointment yesterday.

Deb looks great and she began by telling me she's "so happy to be at PSP and in Montreal."

She's very lucky that it's her first winter here the weather has been mild, so far.

Deb started off by giving me a background to this partnership on private loans with AIMCo:

As you know, PSP is a large and growing fund and as part of that, as you also know, we have a very strong and sophisticated credit platform. We are seeing really interesting market opportunities in credit.

The partnership with AIMCo is an opportunity to align two like-minded, long-term Canadian investors that together can have a bigger market presence to address this exciting market opportunity we are seeing in private credit.

What this partnership brings to PSP is the optionality that we have. Given the sophistication of our credit platform, we have a good flow of credit opportunities and there are times, as you probably know, from a portfolio construction standpoint, we may want to limit our participation and that creates opportunities to bring in a co-investor or a partner like AIMCo.

So that optionality for us is really the benefit of this partnership.

Deb explained this optionality in this partnership:

It's a win-win for both organizations but we are doing the sourcing and it's at our option to invite AIMCo in, it's not a commitment to bring them in to everything we see.
She went on:

When you think about the sophistication of our credit platform -- it's more than a $20 billion portfolio where we delivered double-digit returns since inception in 2015.It's a real franchise that gets a ot of flow as a result of our success. So this creates optionality for us which for portfolio construction reasons gives us an opportunity to bring in a partner.

I then shifted the discussion a little on to risk. 

I told Deb that I doubt she had a chance to really read my Outlook 2023 but I am very bearish and foresee major dislocations across public and private markets this year, including private debt and credit in general, "so those double-digit returns you were getting since inception are going to be much more difficult to get in the next 2-3 years."

I told her I expect more pain in high yield credit (HYG) and the leveraged loan market (BKLN) and this will spill over into private debt:

Deb replied:

In terms of the market, we have a highly diversified portfolio that has good exposure to some things that are well-positioned in this market like credit, like natural resources.

Our credit book as you know, the vast majority is floating rate so our existing portfolio is in good shape and going forward what we are seeing is only the best recession-proof businesses are getting financed and they're now getting financed at higher rates and on better terms.That's why we think the private credit market is really exciting and our sophisticated platform will continue to get a lot of calls and this partnership with AIMCo positions us well to be able to pick and choose to play across that credit opportunity set.

She's right floating rates will help them in a higher inflation/ higher rate environment. I asked her about the link between private debt and private equity over the last few years and how sponsored backed deals were critical to PE deals:

I would say over the last couple of years, we increased our collaboration between our private debt and private equity teams. And that will continue under the new leadership with Oliver and Simon. 

But they're still addressing independent markets. So, we work together where it makes sense but they are two separate groups that existed under David and now we are elevating Oliver, and he will continue as he did before running global credit, and we are elevating Simon who will continue to run global private equity.

That brought me to executive shifts.

Deb told me she is excited to bring Oliver and Simon to the Senior Executive Team.:

Together they have over 50 years experience in private equity and credit. Simon joined us in 2015 from Permira and Ollie joined us from HSBC in 2016 where he was the global head of leveraged finance.So these are highly experienced industry veterans what I'm thrilled to bring on to my executive team.

I told Deb in the environment we are heading in, you need really smart people with a lot of experience.

I wrote this in my Outlook 2023 after I predicted Tesla shares will be trading below $30 a share and Cathie Wood will be closing down her Ark fund this time next year:

Yeah, I know Cathie Wood is a woman and I'm all for gender and other diversity but here's the thing, in a really bad bear market, the market will dictate how good you are, and the market will be brutal, it doesn't care about your gender, race, religion, disability, sexual orientation, etc.

The Cathie Wood honeymoon is over, it's been over since I wrote my comment on the unARKing of the market, but now it's really over.

I have nothing against the lady, her time has come and passed. 

In the environment we are headed toward, the men and women will be separated from the boys and girls. 

And that brings me to my other piece of advice, you'd better hire experienced people in your organization, people with brains, brawn and intestinal fortitude because a prolonged and nasty bear market requires true leadership.

Enough of this ESG fluff, responsible investing is here to stay, everyone with half a brain knows and understands this, but it's time to return the focus on money and risk management.

Responsible investing can complement this but the key work is complement not supplant it.

That brings me to some other advice.

In a bear market, it's all about return of capital not return on capital.

I'll share something else with you. 

While I am happy Marlene Puffer was named the new CIO at AIMCo, her honeymoon and that of David Scudellari's will be short-lived.

They too have tons of experience, have seen their share of bad bear markets, and that's what ultimately counts for AIMCo and its clients.

In a bear market, you need experienced leaders who know what they're talking about.

So, while I'm sure some critics will point out that Oliver Duff and Simon Marc are two men being promoted, I think Deb Orida is wise enough to put the right people in her senior executive team.

I'm a stickler for diversity in all its forms, not window-dressing, real diversity at all levels but I also believe in meritocracy.

Another form of discrimination that doesn't get discussed a lot -- apart from discriminating against people with disabilities which I have pointed out several times -- is ageism and discriminating against older workers with experience.

Again, in a bear market, it's not the young turks who buy the dip indiscriminately that are going to lead the troops through the storm and war ahead, it's the older veterans:

You need people with extensive market experience who really understand what they are up against and how to maneuver their portfolio in a difficult market.

That goes for public and private markets.

And that brings me to my final point on the risks in private debt.

I had a conversation with an industry expert who told me he's worried that many institutional investors and funds who got in late in private debt are in for a lot of trouble ahead.

He said this about unitranche loans:

Within the past several years, this has been a popular mode of financing for the sponsored-backed group. They are a single loan that encompasses both senior and junior into one product. 

Typically you would have a senior loan -- let's say a bank or private credit institutional fund  would provide financing for -- whereas the junior loans which would be the more aggressive opportunistic loans. 

With unitranche loans, you now have a product that is averaging this into one product, so what we end up getting is a senior loans with inherent junior credit risk embedded in it.

I asked this person if this is similar to the subprime credit crisis when they were packaging all these subprime mortgages together and then the credit rating agencies would slap a AAA credit risk rating on them so investment banks can sell them to institutional clients hungry for yield:

Exactly. And this is one of the issues I see permeating the industry. We see a lot of funds marketing themselves as senior type funds but when you look at the nitty-gritty details and their underlying exposures, there's a lot of untitranche product in there.

So then the question becomes are they properly accounting for that junior exposure in their OMs (offering memorandums) when they're talking to potential investors? So I think we are going to start to see a wave of defaults hitting a lot of funds or hitting a lot of asset managers that thought they were in senior only type structures.

I asked him who oversees these structures and whether they are truly investing in what they claim:

So, let's look at the two key parties. You have the underwriter originator which is the portfolio manager and then you have the investor. So the originator and portfolio manager are aware of their exposure but my question for the broader audience is if the investors are aware that there is unitranche exposure that has inherit junior credit risk or is that portfolio manager calling that unitranche in senior only loans?

Stunned, I naturally asked: "Are you telling me there's no third party validation of these unitranche structures and whether they have junior credit risk exposure?!?!?":

Exactly Leo and that is why I fear a lot of investors whether it be your portfolio manager or mutual fund manager buying private credit exposure or structures, are they aware of the true inherent risk of a unitranche loan?

My answer would be only sophisticated private credit managers like a CPP Investments, like myself who understands what a unitranche is would be able to look at that and say wait a second, what is being classified as a senior product actually has like you said 10, 15 20% or more of equivalent junior credit risk but because untitranche loan packages first lien and second lien into one product, most asset managers who fell into this kind of glossed over that point.

He told me investors should always ask about what exactly is in the unitranche loan (what percentage is first lien, second lien, equity) and whether that changes the credit risk profile:

Again, this has been glossed over in many marketing materials. Remember, it's the junior guys that will fail first. The tide will turn. I think we can all say with certainty, defaults will start increasing. So any holder of second lien paper are going to feel the hit first but if you're holding unitranche, you too will be exposed to second lien default risk that you didn't know was embedded in your product.

This is why it's important to have a sophisticated investor like CPP Investments or PSP Investments as a partner because they have an experienced team that is able to dig into these unitranche loans to see what exactly is their risk profile in terms of second lien loans.

I told this person that what worries me a lot, and I alluded to this in my Outlook 2023, is there is a lot more risky debt across public and private markets all over the world that isn't accounted for properly and this could lead to a liquidity crisis unlike anything we have seen yet.

This is what Mohamed El-Erian and others are warning of so pay attention to this unitranche story as we head into a historic and painful earnings recession.

This is why IMCO and others are smart to invest with Antares Capital owned by CPP Investments and why AIMCo is smart to partner up with PSP Investments to explore and invest in private loans.

But let me be clear, we are headed into a very difficult and turbulent period, there might be great opportunities in private credit but there are huge risks too.

That goes for everyone, no matter how sophisticated they are. You can forget about double-digit returns in this space over the next couple of years.

But this agreement between PSP and AIMCo just like IMCO's agreement to invest in Antares is a win-win over the long term.

I also think with Marlene Puffer and David Scudellari joining AIMCo, Evan Siddall is gaining two experienced veterans on his senior management team to help him lead that organization. 

As an aside, Evan, David and Deb all worked together at Goldman Sachs a while ago and they're all top-notch professionals.

Alright, let me wrap it up there and once again thank Deb Orida for taking the time to chat with me earlier and that credit expert for sharing his thoughts with me.

Below, an older (2019) clip discussing how private equity firms are increasingly turning to an obscure type of loan, once almost exclusively used to finance smaller deals, to fund larger and larger buyouts. Yet a growing number of analysts and investors are warning the debt may be riskier than it appears. Bloomberg's Kelsey Butler reports on "Bloomberg Markets."

Also, Howard Marks recently discussed three major misconceptions about private credit with Armen Panossian (Head of Performing Credit), Nael Khatoun (Head of European Private Debt), and Milwood Hobbs, Jr. (Head of North American Sourcing & Origination). Watch this "Insights Live" video for an insider’s look at this rapidly growing asset class.You can also watch it here on YouTube.

Update: I asked the credit expert if this Horizons Active Floating Rate Senior Loan ETF (HSL.TO) which seeks to provide unitholders with a high level of current income by investing primarily in a diversified portfolio of U.S. senior secured floating rate loans, generally rated below investment grade and debt securities, is worth tracking. 

He replied: "Yes, I know it well and would be worth tracking for a private credit benchmark equivalent and perhaps acquiring some after the default cycle (which nobody can predict)."

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