The pension plan for federal government employees is hanging out its banner in New York, hiring a veteran banker to run its private debt asset class. And the first deal is already in the bag.
The Public Sector Pension Investment Board (PSP Investments), which invests pension funds for federal civil servants, said Thursday that it would form PSP Investments Holding USA LLC to target more illiquid and alternative debt securities. To lead the pension fund's first international office, David Scudellari has been hired as head of principal debt and credit investments.
The goal is to provide some investment diversity from other assets. Mr. Scudellari said he'll be disciplined in how he deploys the $3-billion (U.S.) to $5-billion earmarked for investments over the next three years. PSP has more than $112-billion (Canadian) in total assets under management. "I think the middle market [leveraged buyout] space will be an interesting one for us," he said. "We can get very good risk returns, have the proper protections in place and be a meaningful solution provider for those types of financings."
While Mr. Scudellari grew up on Long Island, he's spent much of his career working in Canada. In his most recent role, Mr. Scudellari worked at Barclays Capital as head of global finance for Canada and split his time on both sides of the border. He's also spent more than two decades at Goldman Sachs.
Leveraged finance is a competitive market that PSP says is about $1-trillion (U.S.) wide. Other institutional investors outside of banks have also been looking to lend directly to companies. Earlier this year, the Canada Pension Plan Investment Board bought General Electric Co.'s U.S. private equity lending business called GE Antares, which has targeted mid-sized U.S. companies.
Two-thirds of PSP's New York team's activity will be doing senior lending to corporations. Most of that will be in acquisition finance. The business has already committed to its first $90-million loan, set to close before the end of November, and there are two others in progress. Mr. Scudellari said PSP could also come in as a partner alongside another firm.
Some industries are too risky to be appealing – deeply cyclical sectors such as metals and other resources are some examples – and business plans heavily exposed to commodities also have little lustre, Mr. Scudellari said. Instead, industries such as business services, software and some manufacturing will be targeted, he added.
"All those sectors are actually quite active right now from an acquisition perspective."
PSP's New York office will likely be 12 professionals strong by the end of March. So far, Mr. Scudellari has been joined by managing director Ziv Ehrenfeld, a former Barclays colleague, and Jeff Rowbottom, former North American head of capital markets for KKR & Co.
PSP is planning an even larger London beachhead, too. And in the next three years, Mr. Scudellari envisages having about 30 professionals between Montreal, London and New York.
PSP has been ramping up to grow globally after chief executive André Bourbonnais joined early in 2015.
"The leveraged finance landscape is currently in transition. With traditional capital providers having lost significant market share in the last few years, there is an attractive opportunity for a long-term investor such as PSP Investments to enter this trillion-dollar-plus asset class through its U.S. affiliate," Mr. Bourbonnais said in a statement.