CPPIB's regular Canadian-dollar debt issuance has attracted loyal investors and reduced borrowing costs
Canada’s largest pension fund, the Canada Pension Plan Investment Board (CPPIB), has successfully implemented a strategy to reduce its borrowing costs by adopting a more predictable approach to issuing debt, according to BNN Bloomberg.
A few years ago, CPPIB began selling Canadian-dollar debt on a regular and predictable schedule, a move that has attracted investor loyalty. This approach mirrors the playbook often used by provincial governments in Canada, which follow set schedules to meet pre-determined budget goals.
Sam Dorri, CPPIB managing director, stated in an interview with Bloomberg News that CPPIB has made efforts to be “as predictable and transparent as possible in the Canadian market.”
The fund has committed to issuing half of its debt in the Canadian dollar market, dividing the volumes into deals with maturities of five and 10 years.
The redesign of CPPIB’s issuance program has provided certainty for both sellers and dealmakers, according to Ryan Goulding, principal portfolio manager at Leith Wheeler Investment Counsel.
The strategy is yielding results. CPPIB’s 2034 bond, which carries a 4.3 percent coupon, is trading at narrower spreads compared to an Ontario bond with a similar maturity. This situation is unusual in a market where governments typically benefit from cheaper borrowing than other public sector entities.
Ontario is regarded as one of the highest-quality names in the public sector debt market.
Over time, CPPIB has managed to reduce the premium required for selling new bonds relative to existing securities, known as a narrower new issue concession. Dorri noted that this premium has decreased to just under one basis point in the most recent deal, down from 1 to 1.5 basis points about a year ago.
Other pension funds are adopting a similar programmatic strategy. The British Columbia Investment Management Corp. launched its debt issuance program in 2023, focusing on consistent and well-telegraphed issuances.
Chris Weitzel, senior managing director of fixed income at the fund, indicated that the plan involves selling approximately $2bn annually in Canada for the near future.
CPPIB’s more predictable issuance strategy has also boosted the liquidity of its bonds faster than anticipated, reaching a milestone a year ahead of schedule, according to Dorri.
Trading volumes for CPPIB bonds have increased to as much as $4bn per month and have more than tripled on a quarterly basis since early last year, Dorri reported.
“We’re right in the same trading volume range as our provincial peers,” Dorri added.
Since 2015, CPPIB has sold around $98bn of debt, as stated on its website. The fund’s net assets rose to $646.8bn by the end of June, according to a company statement.
Ryan Goulding from Leith Wheeler commented, “Ultimately CPP will be able to issue at much tighter spreads, and more importantly, have access to funding whenever they want.”
