Institutional Investor is proud to recognize leaders within the allocator community for their outstanding contributions to portfolio development at the second annual AlphaEdge Recognition Dinner. Prior to the event, we sat down with Andrea Kenyon, recognized in the category of Alpha Generation – Private Credit Investing.
Andrea is Managing Director, focused on private debt at Alberta Investment Management Corporation (AIMCo), the $160.6 billion Canadian investment manager. She is an alumnus of Boston College, where she received her Bachelor Science in Finance and Accounting. Andrea entered the investment industry as an investment analyst at Prudential Capital Group. While she was earning her MBA at The University of Chicago Booth School of Business, she was a Summer Associate in investment banking at Bank of America Merrill Lynch; after graduation, she spent two years in the Financial Institutions Group at BAML.
At AIMCo, she first joined as Senior Associate, then rose the ranks to become a Senior Portfolio Manager, Director, and most recently, a Managing Director. At AIMCo, one of Canada’s largest institutional investment managers, she is responsible for managing a portfolio predominately comprised of U.S. leveraged loans and select other private credit investments.
The following has been edited for length and clarity.
What is the biggest challenge facing the industry today?
In private debt, we’re seeing an imbalance in the supply and demand of capital. Investors, from retail to institutional, increasingly understand the value of the asset class, and that has resulted in capital flows to private debt. At the same time, the supply of deals has contracted as the cost of capital has increased. The result is too much capital chasing too few opportunities. That competitive dynamic has led to a deterioration in the structure and pricing of deals. It takes discipline to walk away – even when you have deployment targets.
A lot of buyouts are syndicated by private lenders: Do you think that’ll keep the demand going?
A lot of what has driven demand in this asset class is the rate hiking cycle, which has been fantastic for private debt investments. Much of the debt is floating, which benefits from rate increases, so the returns have been great. Right now, the yield on senior secured debt is around 10%, so it’s also really great risk return.
The long-term view is that debt is a portfolio diversifier (The correlations are low to traditional asset classes), so it should have a permanent place in asset allocations. We’re likely not going back to a zero or near-zero rate environment anytime soon.
Which part of credit are most excited about?
I’m most excited about diversification. We’ve built up a diversified portfolio by product, industry, relationship and loan. When you have the negative return asymmetry in your asset class, diversification is your only free lunch.
As to the most exciting products, that varies, which is why we have a relative value strategy to overweight market segments or products that display strong risk adjusted returns. For example, once rate hikes started to hit, there was a huge opportunity in large corporates as spreads converged with middle market loans.
Who were your mentors, and what made you get into this industry?
My biggest mentor would be my dad: From an early age, he always pushed me, and I think you need that push to be in an industry like investment management. I was in the first or second grade: I said, “Dad, I got the best grade in class, and he said, “Is that your best effort?” and that’s driven me: “Am I producing the best result that I can?”
I ended up in a school where they had a business program, so I was drawn to accounting and finance class. I started my first job at PGIM, and after that, I went to business school to see what other careers I might like. The only classes that I wanted to take were finance classes or investment classes, and that helped me decide, “this is where I want to be.”
If you weren’t in the allocator and investment space, what would you be doing today?
My family’s very entrepreneurial, so I could have taken that route. I’m interested in democratization of finance, i.e., opening private investments up to regular people to be able to leverage the power of their capital to not only create a diversified portfolio, but to support their communities.
I think about the gaps in our current financial system, like the continuing consolidation of capital toward large global financial institutions, which tends to favor the larger companies and cities to the determent of smaller communities. Wouldn’t it be great if someone were able to build a safe and sustainable platform for people to invest in their communities? I love investing and helping people, which drew me to the pension industry in the first place; this would influence my path if I weren’t an allocator.
What is the one tangible thing you would do to change the industry?
One of the things that is hard, particularly with all the regulation, is transparency and breaking things down into things people can readily understand. When professionals start talking, we tend to use jargon without even realizing it, and can get caught up in minutiae rather than key drivers. It would be beneficial to figure out how to enhance transparency between GPs and LPs, and even more broadly between investment management and the rest of the world.
Credit is a relatively new asset class, so bringing people up to speed in the right way is important. AIMCo has been making investments in private credit since 2010. The number of institutions with allocations to the space has grown dramatically since then. Fiduciaries have a duty to these new investors to make sure they understand the fundamentals. Transparency is something to always aspire to and is one of AIMCo’s core values.
In America, everyone’s in awe of the Canadian public pension systems. What advice would you give people in the U.S. to either thing you can do, not to become Canadian but to become better?
I’m an American by background, I moved to Canada to join AIMCo, and what drew me was an innovative Canadian pension model. To the U.S. side, I would say you could give your pensions more flexibility on what they can invest in and more autonomy to run the business.
What the U.S. is fantastic on is the creating a great system for businesses to flourish. I see the Canadian model as an extension of this broader U.S. economic model, getting governance and incentives right, but just in pensions.
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