2019 The Canadian Investment Space Needs Innovation Danny Popescu 05/28/2019 662 Closed Good day, The more wealth one builds, the more important diversification becomes, but few investors recognize how much depth diversification can reach. When most investors think of diversification, they generally think of having a mix of stocks and bonds or perhaps holding stocks in multiple industries and/or geographical areas. While this is important, diversification can reach well beyond publicly traded securities. The phrase Wealth Management should be defined in its most literal way: It simply means to manage one’s wealth/finances. Beyond such aspects as tax minimization, estate preservation, retirement income planning, etc., the underlying assets need to be managed in such a way as to provide protection, growth and/or income. For decades now, bank owned investment companies and other heavily marketed investment dealers have repeatedly told us that investing should be done through publicly traded securities, stocks, and bonds (or mutual funds and exchange-traded funds which hold or track stocks and bonds). They haven’t been misleading us, the truth is, not much else has been available to retail investors and for the most part this still holds true today. That said, what we don’t know can hurt us and the wealth management industry needs to evolve. According to the World Federation of Exchanges, there are roughly 45,000 publicly traded companies worldwide, but it is estimated that 200 – 300 million private companies exist globally. Most of us purchase goods and services from more private companies than we do from businesses which are listed on security exchanges. Just like publicly listed companies, private businesses can range from tiny to massive. State Farm, Ernst & Young, IKEA, McCain Foods, Mars, and Deloitte are just a handful of some of the largest privately held global companies. The biggest pools of wealth generally belong to institutions, pension funds, and charitable foundations, and the investment boards of these organizations all understand the need for diversification beyond stocks and bonds. Of course, it is a lot easier to access equity in a private company if you’re an institutional investor with a $50 billion pool of capital but that doesn’t mean that retail investors should conclude that private equity and private debt are entirely out of reach. One of the drawbacks to private equity for retail investors is the lack of liquidity that ownership in a private business presents. Private Debt (aka Private Credit) on the other hand is more predictable and generally suitable for many retail investors. When we purchase equity in a company whether public or private, we gain ownership in a business and can benefit from the business’ upside while sharing in its risk. When we purchase a bond from a company or government jurisdiction, we provide a loan to this organization which becomes indebted to us hence the word “debt”. Just like equity ownership can be gained through public and private companies, loans can also be made to public and private entities. Private debt can take many forms – from a loan Mom and Dad provide to their daughter to purchase her first car, to the $125 million private loan made to a real estate development corporation for a commercial development project. Asset-backed bridge loans, purchasing corporate receivables (aka Factoring), and mortgage investment corporations for both residential and commercial projects, will continue to make their way into retail portfolios over time. Today, most institutional/pension fund investors have a higher allocation to such alternative asset classes than they do to stocks and bonds, but unfortunately, it will take many years before retail investors can access the same investments on every corner. In February of 2018, Canada’s first multi-strategy, multi-manager private debt and real estate pool was launched. The Rockridge Private Debt and Real Estate Pool is a “retail investor friendly” private debt pool which continues to target a 7-8% annual yield without volatility providing diversification to traditional portfolios. The pool is now the largest in Canada and remains exclusively available to Harbourfront clients. Best, Daniel Popescu CFP, CIM, FMA, FCSI President & CEO “I have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone and may not reflect the views of Harbourfront Wealth Management. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this report should be viewed as a reflection of my informed opinions rather than analyses produced by Harbourfront Wealth Management Inc.” Disclaimer – This information transmitted is intended to provide general guidance on matters of interest for the personal use of the reader who accepts full responsibility for its use and is not to be considered a definitive analysis of the law and factual situation of any particular individual or entity. As such, it should not be used as a substitute for consultation with a professional accounting, tax, legal or other professional advisor. 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