The Canadian High Yield Mortgage strategy is intended for mortgage investors with greater tolerance for risk. It takes an opportunistic approach to investing across the high yield segment of the market, which facilitates access to the best risk-adjusted opportunities through different market cycles. While the allocations within the strategy can vary meaningfully over time and through a market cycle, we expect the strategy to focus on high-quality senior and subordinate high yield mortgages on properties with strong and stable cash flow in liquid markets. The strategy’s objectives are to provide a high income return with low interest rate sensitivity, and it may invest in mortgages with a maximum loan-to-value of 85%. The strategy is a high turnover mortgage solution; therefore, security, geographic, and property type exposures can vary significantly year-over-year.
Strategy overview
- High-quality senior and subordinate high yield mortgages on commercial and multi-residential properties in Canada
- Bottom-up and opportunistic investment process targeting high quality borrowers and unique opportunities
- Aims to provide a high income return with low interest rate sensitivity
- Returns driven by liquidity premiums and credit premiums
- Liquidity restrictions provide better investor alignment and reduces cash drag on returns
Our approach
Investment philosophy and style
- Focus on capital preservation and consistent added value through market cycles
- Seeks opportunities that do not fit the conventional and conventional plus mortgage market but still represent strong risk-adjusted returns
- Focused on highest- quality segment within the broader high yield mortgage market
Investment process
- Concentrated opportunistic approach with a strategic focus on core markets
- Portfolio managers dictate asset mix to capitalize on market opportunities and inefficiencies
- Diligence is bottom-up and reactive throughout credit and negotiation process
- Risk mitigation through deal-specific loan structure
- Proactive approach to risk management throughout the life of each mortgage
Portfolio construction
- Mortgages with a maximum loan-to-value ratio of 85%
- Maximum term to maturity of 11 years
- Maximum 10% single borrower limit
- High turnover strategy despite being a ‘lend and hold’ strategy; risk profile can be adjusted relatively quickly
- Quarterly gated redemptions, with early redemption penalties in first two years of investment
- Derivatives are not permitted
- Ability to utilize operating leverage to manage cash flows (effective March 31, 2022)