The credit chief for Canada's largest pension plan, David Colla, warns of "bubble-like" exuberance in the rush to finance artificial intelligence, urging investors to scrutinize exposure to the nascent technology. With C$863.6 billion ($617.6 billion) under management, the Canada Pension Plan Investment Board continues to fund AI-linked projects, including Core Weave Inc., the largest neocloud leasing AI chips. However, AI investments currently make up only about 3.5% of its credit portfolio, and the fund is becoming increasingly selective.
Colla cautions that the sector faces volatility, with winners and losers emerging as fears of an AI crash persist. Risks are amplified by circular financing in debt packages where tech giants like Nvidia, Amazon, and Microsoft bankroll AI upstarts, creating potential domino effects. The pension manager also scrutinizes off-balance-sheet financing structures and shell companies used to build data centers.
Contrasting with AI caution, the fund deployed over $3 billion in discounted loans and bonds during a recent three-week market selloff. Colla identifies fund finance as a prime opportunity, noting the market has surged past $1 trillion according to Moody's. The growth of private credit and slower dealmaking has increased demand.
CPPIB recently completed two large mezzanine financings in Europe backed by loan portfolios, offering yields 4% to 5% above benchmarks. The pension is also expanding into net-asset-value lending, allowing private equity funds to borrow against investment values. The credit portfolio returned 3.8% in the fiscal year ended March 31, with 67% deployed in the US.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing