2023
Will Private Market Investments soon be a “must have” in client portfolios?
Private Market Investments might be unbeknownst to many, but they also might be the most attractive investment class that most investors don't know much about.
And even if you don't know much about Private Market Investments, you could be benefitting from this investment class already.
On this episode of the Wealth Wisdom Podcast, we dive into the world of Private Market Investments. They’ve traditionally only been used by large institutional firms, endowments, foundations, sovereign wealth funds and pension plans.
That includes our Canada Pension Plan. So yes, if you've been collecting CPP, you've benefitted from this asset class.
While many investors have some sort of balanced portfolio of public stocks and bonds, you’ll likely be surprised by just how much of the Canada Pension Plan is invested in Private Markets.
We get into that and more in conversation with Geof Marshall (Senior Vice President, Head of Fixed Income & Lead – Private Markets), one of the fund managers behind CI’s new Private Growth and Private Income Funds.
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What are Private Market Investments?
According to a UK-based survey, 64% of investors said that a lack of knowledge about private markets is preventing them from dipping their toes in this investment class.
Well, it might be time to reconsider.
Much like your typical balanced portfolio, Private Market Investments are primarily split between stocks and bonds. Geof Marshall breaks it down a bit further for you here.
CPP’s staggering usage of Private Market Investments
The Canada Pension Plan has long been one of the world’s largest pension funds. In 2021, it was designated as the seventh-largest pension plan in the world.
And with a vast amount of assets, comes great responsibility.
Recently, John Graham (Head of the CPP Investment Board) claimed that the Canada Pension Plan is worth $576 billion dollars, and returned 9.6% annualized over the last 10 years.
If that’s the case, you can partially credit their return to a large stake in private market investments.
While most regular investors hold next to no Private Market exposure, it’s a very different story for the Canada Pension Plan.
Geof Marshall talks about the amount of exposure that CPP has to Private Market investments in the clip below.
Private Markets: Not like other Investments
We’re accustomed to talking about the ups and downs of the market.
Ironically, those ups and downs aren’t as pronounced with Private Market Investments.
Geof talks a bit more about that in this “scientifically correct” clip here.
Dancing metaphors aside, there’s another reason why you may want to consider adding Private Market Investments to your portfolio.
Aside from market fluctuations, we often talk about making sure your portfolio is diversified.
Well, there might not be a better diversifier than Private Market Investments, since they have a very low correlation to traditional asset classes.
And, as Geof says in this clip below, Private Market Investments traditionally have provided similar returns to the market with less inherent risk OR, they’ve provided higher returns when compared to public market investments that have the same amount of risk.
Why Private Market returns have generally been higher
So we’ve stated that Private Market Investments have tended to provide investors with above average returns.
Why is that?
According to Geof, a big part of it has to do with a lack of liquidity.
Our team’s approach is to always figure out what your short-term and long-term plans are, and then invest from there accordingly.
However, even with long-term investments, they’re still “liquid” as Geof mentioned, meaning you can access then at any time.
That isn’t usually the case with Private Market Investments, however, that’s a prevailing theory as to why you can achieve higher returns with this investment class. You’re being rewarded for not having immediate access to your long-term investment.
The future of Private Market Investments
Many investors aren't aficionados on Private Market Investments. That might not be the case in the near future.
As Geof notes in this clip, this investment class might go from a “nice to have” in 2023, to a “must have” in 2025.
What’s most exciting about this investment class is that it’s becoming more accessible to retail investors. That previously wasn’t the case.
The Canada Pension Plan has been a large benefactor of this for a long time. It's time that the rest of Canadians got their fair share.
All Private Market offerings are NOT created equal
This is the case for most things in life, but it is VERY important for investors to know there have been a lot of private equity firms created in the last 5-10 years. We will not deal with the majority of them.
Our process of selection is very rigorous and the benefits of private markets that we talk about only come from the very best and most disciplined of firms.
Geof and I touch on that here.
Should Private Markets be in your portfolio?
Reach out to us if you’re interested in seeing if you qualify and are interested in adding some Private Market exposure to your portfolio.
There are certain qualifications to be to invest in Private Markets and of course they should only be used in situations where appropriate for the investor.
We are happy to have a 15-minute discussion with you to explore the suitability for you and see if appropriate for you to take the next steps towards enhancing your portfolio.
Until next time,
Assante Sana
John Lawson (CFP®, CIM, FEA), Senior Wealth Advisor
Sana Family Office | Assante Capital Management Ltd.
