Daniel Garant, Executive Vice President & Global Head of Capital Markets & Credit Investments, recently participated in CFA Montreal’s webinar “Should Investors Worry About Market Concentration?” 

When investors ask whether they should worry about market concentration, they may be missing a bigger challenge: how do you build portfolios when a handful of companies dominate public equity benchmarks? 

From left to right: Stephen Hui (Moderator, Pembroke); Owen Lamont (Acadian); Daniel Garant (BCI).

Today’s market concentration landscape

The S&P 500’s top 10 holdings now represent roughly 40% of the index, up from nearly 19% in 2010.¹ Technology giants drive this concentration — the so-called Magnificent Seven: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla.  

This could create real portfolio construction challenges for some investors. When benchmark allocations tilt heavily toward similar names, in this case technology, active stock selection becomes difficult and passive investors find themselves with significant exposure to a handful of companies.  

Some investors draw parallels to the 1990’s/2000’s dot-com era, yet the fundamentals tell a different story. At the time, the S&P 500 index included several overvalued tech companies with speculative business models. These companies traded at high valuations with minimal earnings, valuing potential rather than actual profitability. Pets.com, the poster child of dot-com excess, raised US$82.5 million in its February 2000 IPO but filed for bankruptcy by November of the same year. 

Today’s reality differs. The Magnificent Seven generated over $1 trillion² in combined annual revenue in 2024, representing established businesses that make dot-com comparisons inappropriate. Tech stock market leadership only becomes problematic when valuations disconnect from underlying performance.  

AI infrastructure deployment: The timing challenge

Raising a bigger question for the entire technology sector: when will AI investments deliver expected returns and how long will it take? Companies across the industry are investing heavily in AI infrastructure but not everyone can be a winner.  

Daniel Garant: “My biggest worry is it might take longer and it might cost more. Some of these assumptions about translating revenue into profit are optimistic.” 

Garant’s timing concerns become clearer when examining actual deployment challenges. Physical constraints create unexpected bottlenecks. McKinsey estimates AI demand requires $5.2 trillion in capital expenditure through 2030, translating to adding 156 gigawatts (GW) of AI-related data center demand.³ The challenge then extends beyond building data centers — powering them creates the real timing gap.  

McKinsey identifies a mismatch between data center builds, which can be done in 18 to 24 months, and power infrastructure development, which can take anywhere from three to ten years to complete.⁴ This mismatch means today’s AI infrastructure investments may not be operational until the late 2020s. 

Northern Virginia Reality Check: Data center operators seeking space in Northern Virginia – the United States’ largest data center market – face six to eight years wait times for power generation, revealing capacity constraints even in the most established markets. 

Despite massive capital commitments, the pace of AI adoption and actual economic impacts remain uncertain. Garant expects the winners will be the companies that can execute, rather than just announce investments. 

How BCI addresses concentration risks through portfolio construction

For BCI, the concentration discussion underscored a challenge with public equity benchmarks. Garant explained how the quality of public equity benchmarks has deteriorated. Over the past 15 years, private equity firms have increasingly acquired troubled public companies. Improved growth of these delisted companies occurs outside of public markets, leading to benchmark degradation across multiple sectors, not just technology. This has changed the risk-return profile available to public equity investors. 

Our approach emphasizes robust portfolio construction across asset classes, geographies, and risk factors rather than attempting to solve concentration through individual stock selection alone.  

With strong funded ratios, clients have reduced overall public equity allocations from approximately 50% five years ago to 25% today. To align with this shift in client allocation, BCI has identified opportunities in areas such as private debt.  

Building a winning strategy: BCI’s private debt program launched in 2018 and has become a portfolio cornerstone for our clients. Dive deeper into Garant’s insights on the strategy and asset class evolution with Top1000Funds here.   

Key takeaways

The AI transformation is real and permanent. Companies are investing heavily in AI to improve productivity, decision-making, and operational efficiency. Yet not all AI investments will deliver proportional returns. 

The next five years will test which institutional investors can adapt fastest. AI deployment realities will separate winners from losers, while private markets will likely continue to absorb growth opportunities. Success will depend less on predicting market concentration and more on positioning portfolios where value creation can occur. 

While market concentration dominates the investment landscape, BCI is focused on: 

• Multi-factor analysis: BCI analyzes various factors, such as data center capacity gaps to factor into decision making  

• Staying ahead of market changes: BCI’s total portfolio approach adapts to market changes demonstrated by our move into other strategies such as private debt and investment grade private debt.    

• Investing with purpose: BCI invests where returns make sense for clients. Our mandate is simple: generate returns for our clients. 

References 

¹ Source: Bloomberg. S&P 500 Index data as of November 13, 2010, and November 13, 2025. 

² Source: Bloomberg. USD sales revenue data as of December 31, 2024. 

³ https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/the-cost-of-compute-a-7-trillion-dollar-race-to-scale-data-centers

⁴ https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-is-a-data-center  

A name change to reflect the department’s evolution since its inception over 20 years ago

After more than two decades of growth and evolution, BCI’s Public Markets department is changing its name to Capital Markets & Credit Investments. The change represents the breadth, expertise, and sophistication of the investment strategies the team has built over BCI’s nearly 26-year history. 

What began as a small team in 2000 has grown into a dynamic, multi-faceted group managing more than $165 billion in assets. A key milestone in this evolution is the strategic shift toward internal management capabilities, rising from 57 per cent internally managed assets in 2015 to more than 85 per cent today. This agile approach supports internal innovation, differentiates BCI’s team, generates greater client value, and demonstrates our commitment to building world-class in-house expertise.

The program has successfully navigated multiple market cycles by maintaining defensive positioning with strategic sector allocations and establishing robust liquidity frameworks years in advance. ESG principles have also been integrated directly into investment analysis and decision-making processes, reflecting BCI’s recognition that environmental, social, and governance practices can materially impact investment performance. 

Today, the Capital Markets & Credit Investments department oversees a global portfolio that spans public equities, absolute trading strategies (through the Partnership Portfolio), derivatives trading and indexing, fixed income, foreign exchange, and private debt, while also managing BCI’s Funding Program and overseeing BCI’s ESG strategy. The private debt component alone has grown significantly since its launch in 2018 with the Principal Credit Fund now representing a $20 billion allocation. 

“This change reflects the evolution of our department. Capital Markets & Credit Investments better captures who we are today: a dynamic, forward-looking team that continues to grow and innovate. This new department name honours everything we’ve built and signals where we are headed,” said Daniel Garant, Executive Vice President, Global Head of Capital Markets & Credit Investments.  

As public and private markets strategies converge, the Capital Markets & Credit Investments team’s agility and expertise enable BCI to identify and capitalize on unique investment opportunities across the capital spectrum, delivering stronger outcomes for the clients we serve. 

While the department’s name has evolved, its core mission remains unchanged: delivering strong, risk-adjusted returns for BCI’s clients through diverse investment strategies. 

By Sarah Rundell

PUBLISHED: August 14, 2025

British Columbia Investment Management Corporation (BCI), the C$295 billion ($214 billion) asset manager for public sector bodies in Canada’s western most province, oversees a C$20 billion ($14.5 billion) allocation to private debt in a strategy that is defined by a few key characteristics: a large and growing allocation to co-investments, an avoidance of mega deals and an expansion into Europe and APAC.

Around 65 per cent of the private debt allocation is direct or in co-investments via partnerships with external firms, which although not unique, sets BCI apart from many other investors and reaps benefits like diversification, deeper relationships, deal selectivity and lower fees.

“Not everyone can do direct or co-investments but having an overall portfolio of 65 per cent in direct and co-investments is a high number, and we are looking to do more,” says Daniel Garant, executive vice president and global head of public markets, in conversation with Top1000funds.com.

BCI has been doing direct lending in the US ever since the portfolio was launched in 2018. But moribund M&A activity continues to push private credit firms to jump on every opportunity. It’s drawn huge investor flows into US private debt and tightened credit spreads. The fiercely competitive market for lenders has propelled BCI into new geographies – first Europe and more recently, Asia Pacific.

“For the last three years, we have increased our allocation to Europe for the simple reason that credit spreads and returns are currently attractive. Having a portion in Europe, and a growing portion in Asia Pacific, is helping us as these markets will develop over the years. They won’t get to the same size as the US, but private debt in Europe and Asia will get a growing share of this portfolio,” he predicts.

Another important seam to strategy involves avoiding mega deals where “everyone” is bidding. It’s not that these deals aren’t interesting, says Garant, it’s just that they are competitive and tightly priced. Instead, he is focused on transactions that are less crowded to get a better spread, calling on BCI’s strong partners to bring deal flow in the upper middle market and middle market.

Another reason to avoid mega deals in private debt includes competition in the space from broadly syndicated loans (BSLs), which corporate borrowers can tap into as an alternative to private debt. BSLs are usually cheaper, and lenders don’t ask for as much spread as private credit investors. In return, they don’t have the same flexibility.

“A private debt loan is more flexible, but it is more expensive,” he says.

Adjacent Opportunities

Another successful seam to strategy includes adjacent opportunities. In one example, the team has broadened its remit and ventured into more asset-backed lending. Garant says it’s less competitive and offers a better risk return, and although deals are more complex, BCI can draw on its deep internal expertise and talent pool for support – around 85 per cent of BCI’s total assets are managed internally.

Traditionally, asset-backed lending where loans are secured against property or equipment, consumer loans or credit card balances, used to be the domain of banks. Unlike direct lending which involves analysis of the corporation, financial projections and strategy, investors in the asset-backed space must also ensure they have the capacity and infrastructure to successfully select the assets that sit behind each deal.

“This is where the secret lies,” he says, adding that managers (and their selection) play a key role in sourcing the assets that back the loans. “Asset-backed lending is usually part of a broad diversified portfolio and that requires technology, including AI tools, to better enable us to see the portfolio behind it because this is where the risk sits.”

Adjacent opportunities also include looking for openings in investment-grade (private) debt where investment-grade corporates go to the private market in search of a more flexible portion of funding.

It’s a strategy that also plays into another inherent strength of the portfolio.

The public markets team oversees both the allocation to private debt and absolute return strategies, alongside more obvious public allocations to passive and active public equities, government and corporate bonds, derivatives, trading and FX and managing portfolio leverage. Garant believes the hybrid portfolio works particularly well given today’s demands on investors to remain flexible, and the fact that the lines that used to define markets are increasingly blurred.

“Investment grade private debt is a hybrid between corporate bonds which are investment grade, and private debt per se, so having the view of both markets is essential in my view to do a good job in terms of capital allocation and risk return.”

Absolute Return and Synthetic Index Replication

The C$12 billion ($8.7 billion) absolute return portfolio, the other slight anomaly in BCI’s public markets allocation, seeks opportunities that are uncorrelated to equity – namely unique, idiosyncratic investments that are expected to perform well in all market environments.

The strategy provides a welcome corner of active risk in an equity allocation that has steadily moved into passive.

At 23.6 per cent, BCI’s current allocation to public equities is a smaller proportion of assets under management than it used to be and subjects the portfolio to less volatility than in the past. Of that, the majority is passive in index strategies for rebalancing.

Absolute return investment opportunities have a specific risk-return profile that typically comprises low downside risk and a capped upside, but which is above the market beta return. Absolute return implementation comes via an overlay above public, indexed equities whereby BCI’s clients receive the beta of equities, and a value add over the benchmark from uncorrelated strategies.

“Of course, the quid pro quo is if the downside is capped and limited, the upside is also going to be capped. The key success factor is the right partnership and sourcing, as well as the skill of the team and being agile and nimble to look at opportunities that are a bit different,” he says.

The largest exposure is to a long-short market-neutral credit manager. Other uncorrelated instruments providing strong returns in the overlay strategy include transactions in litigation finance and structured debt instruments with penny warrants. Here, the downside credit protection caps potential losses and the upside comes via the interest rate paid on the debt instrument and potential equity returns from the penny warrants.

In keeping with BCI’s overarching approach, the structure of the overlay is managed internally with capital allocated to partners where BCI will co-invest if the team decide they want more exposure to particular opportunities. “The positions are not short-term, we target transaction maturities to be within five years – we don’t aim for short-term tactical positions that are, say, three months.”

It’s a topical point. As more investors explore tactical asset allocation in the current climate, Garant remains lukewarm.

“I’m not a strong believer in tactical asset allocation. Our strategy is not based off short-term market moves.”

“Tactical asset allocation requires coping with significant mark-to-market volatility with features such as stop losses, and although some firms are good at it, many aren’t because it’s extremely difficult to time market movements. If you want to perform, you need to change positions quickly, and positions need to be large to have a meaningful impact on your return. For example, relative value trades between equity and bonds consume a lot of active risk.”

BCI has no edge investing tactically, he continues. It’s much better to invest the way they are, whereby partners bring opportunities, the internal team hunts for specific returns and risk profiles, and where transactions are less crowded.

A second active equity strategy in addition to absolute return comes via synthetic indexation, where the team move investment between physical and synthetic index replication according to market opportunities.

The physical allocation involves trading a basket of stocks alongside a synthetic index replication exposure via swaps, he explains. Every year, the team has added value by doing synthetic index replication and he concludes that the strategy is important because active equities are difficult in the current market.

“In public equity markets, we have never seen this type of market concentration before. In Canada, we are used to having a few stocks dominating the benchmark, but in the US, this is a new feature in the modern era. It adds complexity for long-only public equity active investors.”

Transformational investment launches Brinley’s inaugural collateralized loan obligation (CLO) offering

Victoria, BC, July 30, 2025 – British Columbia Investment Management Corporation (“BCI”), one of Canada’s largest institutional investors, today announced that Brinley Partners, LP (“Brinley”), a private credit investment manager initially seeded by BCI’s Principal Credit Fund, has secured an additional US$4 billion commitment from a leading U.S. insurance company. This capital will fund Brinley’s inaugural collateralized loan obligation (“CLO”), the first in a planned series of rolling vintages, beginning with a US$1 billion investment vehicle.

Brinley focuses on high quality companies in the middle-market, upper-middle market, and large cap space, operating in defensive sectors. Brinley’s first flagship fund, Brinley Private Debt Fund I LP, closed in 2021 with approximately US$3 billion of total capital, inclusive of leverage.

“BCI first invested in Brinley in 2021, having built strong conviction in the strategy created by the company’s Founder, Kerry Dolan, and the growing demand for corporate private debt. Since that time, Brinley has demonstrated successful execution and delivered strong results for BCI,” said Daniel Garant, Executive Vice President & Global Head, Public Markets at BCI. “We’re thrilled to see Brinley secure this US$4 billion commitment to extend their offering into the CLO market. This is a transformational transaction for Brinley and all equity partners – including BCI.  We are pleased to continue our partnership with Brinley in their next phase of growth.”

Kerry Dolan, Founder and Managing Partner of Brinley added: “Our inaugural CLO is a natural extension of our credit platform, and welcoming a new strategic partner marks a meaningful milestone in Brinley’s continued evolution and the growth of our firm.”

Brinley’s expansion into the CLO market reinforces its momentum as a growing, multi-product credit platform. Leveraging the firm’s existing capabilities, the CLO will employ Brinley’s flagship strategy of providing comprehensive capital solutions to high-quality mid-market and large-cap companies, with a specific emphasis on businesses with high barriers to entry, compelling industry fundamentals, and demonstrated revenue visibility or predictability, among other factors. The CLO strategy was specifically designed to meet the needs of insurance sector investment capital, including flexible structuring capabilities that allow the CLO to include various debt products.

BCI’s Principal Credit Fund has committed, or agreed to commit, more than US$2.5 billion to Brinley.

• Three Hills is pleased to announce a strategic minority investment from British Columbia Investment Management Corporation (“BCI”), aimed at supporting the firm’s long-term growth plans.
• Following this transaction, Three Hills will remain an independent firm with majority ownership from its Partners and employees, and will continue to be led by Founder and CEO Mauro Moretti.
• BCI has been investing for years with Three Hills and will remain a significant and strategic limited partner in Three Hills’ fund strategies.

London, Luxembourg and Victoria (British Columbia), July 19, 2025 – Three Hills (“the Firm”), a private markets investment firm specialised in providing bespoke capital solutions to entrepreneurs and management teams in Europe and North America, and British Columbia Investment Management Corporation (“BCI”), one of Canada’s largest institutional investors, today announced the signing of a strategic minority investment agreement by BCI to support Three Hills’ long-term corporate development and growth objectives.

The partnership represents a natural evolution for Three Hills. Established in 2013, the Firm has continued to execute a disciplined growth strategy, successfully expanding its investment verticals. This includes the launch of Three Hills Impact and Three Hills Credit Opportunities, while also raising its largest-ever fund in the core Capital Solutions strategy, resulting in total assets under management (AuM) of over EUR 3 billion. From its headquarters in London, the Firm has also expanded its global presence with professionals located across Luxembourg, Milan, New York, Madrid and Paris. Upon completion, BCl’s strategic minority investment will support the Firm’s growth trajectory, with the capital primarily allocated towards strengthening balance sheet capacity and funding new strategic initiatives.

Mauro Moretti, Founder and CEO of Three Hills, said:

“We are delighted to enhance our partnership with BCI, which reflects our commitment to build an even stronger and more diversified platform in the coming years. Having previously supported the Firm’s strategies, the team at BCI demonstrates a sophisticated understanding of private markets, an entrepreneurial spirit similar to ours, and a global network that aligns with Three Hills’ long-term strategic objectives. Their endorsement reinforces the trust that our Limited Partners have placed in our team and investment approach.”

Daniel Garant, Executive Vice President & Global Head, Public Markets at BCI added:

“BCI is pleased to expand our partnership with Three Hills, a top-performing asset manager in Europe with significant growth potential, through this new minority investment. We are confident that under Mauro Moretti’s leadership, the firm’s strategic ambitions will continue to deliver meaningful value creation and sustainable long-term results for its partners and LPs.”

Under the new partnership structure, Three Hills’ Partners and employees will retain majority ownership and operational independence, with no impact on the day-to-day management or investment decisions. Mauro Moretti will continue in his role as Chief Executive Officer, while Leks de Boer will remain Chief Financial Officer with overall oversight of the Firm’s Finance. Risk and Compliance functions.

The transaction is expected to close in the second half of 2025, subject to customary closing conditions and regulatory approval.

Campbell Lutyens acted as financial advisor to Three Hills. Travers Smith LLP advised Three Hills on the legal aspects of this transaction, while BCI was advised by Latham & Watkins LLP.

• Option to co-invest in additional direct lending opportunities with Arini, sourced through their alliance with Lazard 
• Expands BCI’s exposure to European mid-market credit market 

Victoria (CANADA), June 19, 2025 – British Columbia Investment Management Corporation (“BCI”), one of Canada’s largest institutional investors, today announced it has completed a US$200 million anchor investment in the newly launched, Europe-focused, Arini Direct Lending Fund (“the Fund”) as part of the recently announced alliance between Arini Capital Management and Lazard, Inc. (the “Alliance”) to provide bespoke direct lending solutions to mid-market companies across Europe. In addition, BCI plans to invest, at its discretion, an additional US$400+ million as a co-investor in future European direct lending opportunities. 

The Fund is well positioned to meet the rising demand for independent financing and tailored capital solutions among European mid-market companies, as industry dynamics have shifted many lenders up-market. By leveraging Lazard’s extensive corporate advisory network for deal origination and Arini’s deep experience in credit underwriting, the Fund and Alliance offer a differentiated approach to efficiently source attractive opportunities and underwrite private credit investments.  

“Our anchor investment in the Fund positions us as a key partner in this differentiated private credit platform, created through the alliance between Arini Capital Management and Lazard, Inc., supporting our strategy to geographically diversify BCI’s Partnership Portfolio. The opportunity to co-invest with Arini in other exclusive lending opportunities will also provide BCI with more targeted exposure to various segments of the European market,” said Daniel Garant, Executive Vice President & Global Head, Public Markets at BCI. “This initiative not only provides us access to Europe’s vibrant private credit sector, but also positions us well to help deliver high-quality, risk-adjusted returns for our clients, while fostering the growth of dynamic mid-market businesses.” 

The Fund will focus on a diversified mix of senior and junior debt, targeting resilient, risk-adjusted performance. Co-investment opportunities for BCI are expected to arise when facility sizes are too large for the Fund based on portfolio concentration limits.