A rigorous due diligence process and the ability to invest with any asset class or manager without conflict can improve portfolio returns
To the unwary eye, it may appear as if there has been an explosion of investment products with a robust offering of exchange traded funds (ETFs), mutual funds and now liquid alternative funds (aka hedge funds with daily liquidity). The choices seem endless and the decisions more complicated. Even with this array of choices, the fact is that the retail investor, regardless of net worth, typically has fewer choices and access if they are dealing with a bank or broker.
Institutional investors such as pension funds, university endowments, and sovereign wealth funds, have an unconstrained, open-architecture investment universe. These hard-to-access institutional opportunities allow these sophisticated investors to have the ability to create portfolios with broader diversification, which may allow for better risk adjusted returns. This is the main reason that Canada’s Pension Plan is deemed to be so successful.
At Northland Wealth we dedicate considerable resources to generating access to investment solutions that tend to only be available to institutional investors. In addition, as fiduciaries to the family’s we serve, we perform extensive and rigorous due diligence on the managers and opportunities we look at.
The following examines just a couple of the managers we have met with over the past few months.
With its deep political connections and 32 year track record, the Carlyle Group has amassed more than US$200 billion in capital under management and is considered one of the world’s preeminent private equity firms. As one of the only Canadian investors to be invited, Northland Wealth was pleased to attend Carlyle’s global partners meeting. At this annual event, which is held in Washington, D.C., investors travel from Europe, the Middle East, Asia, Latin America and North America with the objective of being updated on Carlyle’s current and upcoming funds along with key economic and political insights.
In making their case for private equity investing, meaning in companies that are not listed on a public stock market, Carlyle made the convincing case that many growing companies avoid being listed because of the disclosure challenges it presents. For example, as of year-end 2017, the number of public companies in the U.S. had declined by half from its peak in 1997. Many may remember that Elon Musk recently considered taking Tesla private. There are now fewer good opportunities in the public markets than in recent times.
Starwood Capital is a specialized manager, founded by Barry Sternlicht, which focuses on the investment, management, and construction of real estate assets globally. Northland Wealth was fortunate to be introduced to the firm when members of our investment team attended the Skybridge Alternative (SALT) investment conference held in the southwest United States in 2016. During our 12 month due diligence process, one of the challenges that we considered was that the 11th fund from Starwood would be in excess of $5 billion (the total raised was $7.5 billion) which could lead to challenges in deploying investors’ capital in opportune ways. Starwood is not the only real estate fund to raise such a large fund, as the total un-invested capital looking for real estate investments has risen to a record of $294 billion as of September 30, 2018.
In deploying these assets, an emerging trend is to buy whole publicly listed real estate investment trust (REITs) and take them private. An example is Starwood’s purchase of the Canadian listed Milestone REIT for US $2.85bn in January of 2017.Based on our discussion with Starwood’s deal team and advisory team sat accounting firms, the expectation is that there may very few publicly available real estate investment opportunities in the next decade.
Northland Wealth is now conducting diligence on an investment fund focused on public companies listed on Chinese mainland exchanges. This fund is only available to institutional clients and has outperformed its benchmark index by 9% a year over the past ten years. Alberta Investment Management Corporation (AIMCO) has recently committed $500M to this fund. When Northland Wealth connected with AIMCO to compare notes, they were amazed that we had the ability to access the same opportunities at the same fee schedule as a $100 billion pension fund does.
As one of North America’s leading family offices, Northland Wealth’s role is to find, access and utilize the best investment opportunities available. This is what is known as “open architecture” and is one of our key differentiators versus what is available through banks and brokers in Canada. Over time, we will look forward to sharing our insights and unique investment opportunities that we find.