• Northland Wealth

Unmasking Pooled Funds

Updated: May 2, 2020

As a fiduciary, one of the ways that we at Northland Wealth Management are working for the families we serve is to provide access to the same alternative asset managers in which many of the largest Canadian pension funds are invested. We will be furthering this objective through the launch of our new pooled funds early in 2015 in order to provide your family with the potential for improved risk-adjusted returns.

Canada has garnered world-wide attention, given the success of CPP Investment Board, Teacher’s, and OMERS for their investment programs in asset classes such as private equity, real estate infrastructure and hedge funds. However, access to institutional-quality alternative investments has been lacking for smaller institutional investors, families of significant wealth, and private investors that meet the Accredited Investor requirements (one million dollars in financial net worth or five million in total net worth). Investors seeking to gain diversified access to the best alternative asset managers and opportunities find it difficult, or nearly impossible, to directly invest in these alternative asset classes. Nor do such investors, in most cases, have access to the best alternative asset funds. The cost to find, negotiate and manage alternative asset investments is prohibitively high for smaller investors and the cost to invest with external alternative asset managers is significantly higher than the cost to invest in traditional asset classes.

Accordingly, direct investments can only be achieved efficiently by the largest of investors, those with dedicated in-house expertise and sufficient capital to make efficient allocations. A professionally managed pooling framework can facilitate a more rigorous, dedicated and expert system of disciplined investment and risk management than may otherwise be available, by assembling the buying-power needed to access institutional-quality investments. This is especially true when a firm has experienced alternative asset research staff to review the myriad of manager and portfolio options available, and the resources to perform the due diligence and monitoring necessary to actively allocate/manage the portfolio on an ongoing basis.

In order to gain access to the best opportunities in a diversified manner, most pension funds within Canada use investment pools, or what are also known as pooled funds.

A pooled fund is similar to a mutual fund in structure, as the investor purchases and redeems units at the prevailing net asset value – but the similarity ends there. The best way to think of pooled funds is as an extension of the portfolio manager, as it is simply the method by which wealth management services are provided to the client. Internally managed pooled funds are provided as a service in contrast to mutual funds that are sold as a product.

In a pooled fund, a manager aggregates client monies through a non-prospectus structure such as a unit trust, limited partnership (LP), or a limited liability company (LLC), in order to facilitate investment.

.n contrast to mutual funds, pooled funds may have a broader area of investment and may have exposure to not only stocks and bonds, but alternative investments such as real estate, private equity & debt and hedge funds. It should be noted that pooled funds that invest in non-traditional asset classes may have less liquidity than public market investments. Some of the underlying investments may have lock-up periods ranging from 3 months, for hedge funds, to as long as 10 years for private equity . It’s worth noting that, as recently as a decade ago, many investors had the majority of their investments in bank GICs with maturities of similar time frames.

The benefits of Northland Wealth Management’s new pooled funds will be:

• Greater diversification across multiple investment options or managers’ strategies within a fund; • In-house research of asset managers and oversee the allocation towards the opportunities and manage changes as economic and investment circumstances warrant; • Continuous professional due diligence, research and monitoring; and providing aggregated performance on the entire set of investments; • Increased buying power in hard-to-access asset managers whose minimums may range from $5 million to $10 million per investment; • Increased bargaining power - lower fees or break points can often be negotiated with asset managers on behalf of the fund; • Eligibility for tax-deferred and exempt accounts such as RRSPs, RRIFs and TFSAs. Northland Wealth Management will keep you informed of our progress in regards to the availability of these funds and how they may assist in meeting the long-term objectives and goals of your family’s portfolio.

#ArthurSalzer #VictorKuntzevitsky