The Canadian Conventional Plus Mortgage strategy provides investors with access to liquidity premiums and credit premiums through investments in a portfolio of first mortgages and subordinate mortgage on property located in Canada. It capitalizes on the strongest risk-reward opportunities, either senior or subordinate, available in the conventional plus market, and the credit risk profile of the strategy can be adjusted depending on the market environment. The strategy aims to deliver a higher yield than conventional mortgage strategies, and has a focus on first-rank mortgages (income producing and non-income producing).
Strategy overview
- Conventional plus, senior and subordinate mortgages on commercial and multi-residential properties in Canada
- Flexibility to react to market mispricing and to structure mortgages with strong risk-adjusted returns
- 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
- Capitalize on mispriced pockets of opportunity across conventional plus senior and subordinate mortgages
- Quality-biased with a tilt to senior mortgages
Investment process
- Strategic focus on conventional plus segment of Canadian commercial mortgage market
- Investing in individual mortgages senior income producing and non-income producing mortgages, as well as subordinate mortgages
- Portfolio managers dictate asset mix to capitalize on market opportunities and inefficiencies
- Individual mortgage 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 10% in a single individual mortgage
- Maximum 10% single borrower limit
- Maximum term to maturity of 15 years
- Despite being a ‘lend and hold’ strategy; risk profile can be adjusted relatively quickly
- Quarterly gated redemptions with early redemption penalties in first three years of investment
- Derivatives are not permitted
- Ability to utilize operating leverage to manage cash flows (effective March 31, 2022)