Beyond Stocks and Bonds
For Canada’s affluent families to grow their wealth in uncertain times, it is important to realize that the standard “60/40” investment approach may not be enough. Aside from limiting the possible investments available to high net worth investors, this type of simplified portfolio is anchored to the volatility of public markets.
So what is the alternative? At Nicola Wealth, we have an extensively diversified investment approach that goes well beyond stocks and bonds. Our investment strategy follows an institutional approach that provides our clients with access to private investments not usually available to the retail investor.
Similar to large institutional investors, we use a fund-of-funds approach, where we invest with multiple private managers. We are able to reduce risk through diversification across managers, regions, and strategies, thereby increasing our coverage of different parts of the growing private investment sphere, including hard asset real estate, private equity, private debt, infrastructure, and renewable resources.
By applying our fundamental tenets of diversification and cash flow to private investments, our clients have access to additional asset classes that will help build their wealth.
What are these private investments and how do they work?
156 Second Street Office Building, San Francisco, California. Purchased by Nicola Wealth in 2012
Hard Asset Real Estate
Nicola Wealth has been investing privately in real estate for over 15 years, helping clients build wealth through multi-family and commercial-grade properties across North America. Our in-house division of experienced real estate and asset management professionals oversee over $4 billion of income-producing real estate in Canada and the United States.
We aggressively pursue acquisition opportunities in all asset types in markets across North America through our relationships with best-in-class partners, providing us access to off-market or unlisted opportunities. With strict and diligent investment criteria, we ensure our portfolios are composed of high-quality properties that meet our standards.
Our strategy is currently comprised of three limited partnerships: Nicola Canadian Real Estate LP, Nicola U.S. Real Estate LP, and Nicola Value Add LP. In addition to focuses on cash flow and geographical diversification, our Nicola Value Add LP provides an opportunity to build and develop properties well-positioned for long-term growth.
Private Equity & Private Debt
Until recently, private equity investments have been limited to either large institutional investors (such as most of Canada’s largest pension funds) or ultra-high net worth individuals and families. Minimum investments in pools are often $5 million or more. Tiger 21, an investment peer group for individuals with investable assets of over $10 million, considers private equity an essential asset class and part of their portfolios.
Individual investors are normally precluded from investing in this desirable asset class due to the high minimums required by private equity managers and the preference of many managers to deal primarily with institutional investors.
Through the Nicola Private Equity LP and Nicola Private Debt Fund, our in-house portfolio management team’s strategy is to create an investment opportunity for clients where they can have a portfolio similar to family office and institutional investors but with a low minimum, the potential for some liquidity in an asset class that usually offers no liquidity, and the diversification of a fund of funds.
The innovative structure of our investments allows our clients to participate in a diversified selection of private equity and debt without experiencing the performance drag of extended draw down and pay out timelines.
Additionally, to reduce fees and improve returns in this asset class, we pro-actively seek out co-investments directly in certain investment opportunities with our PE and PD managers.
Infrastructure & Renewable Resources
Unlike financial assets which derive their value from a contractual claim or intangible assets (such as patents or brand value), Real Assets are physical assets that have an intrinsic value. Infrastructure (e.g. highways, telecommunication towers, water filtration plants), renewable energy (e.g. wind farms, solar), and renewable resources (e.g. farmland, timberland) are assets that form the foundation of society’s ability to function by providing goods and services which are essential to the wider economy.
These types of assets provide attractive long-term returns, with a diversified index of Real Assets providing attractive returns of 7.9% since 1996 (to September 2017), matching the performance of equities but with significantly lower volatility*, a characteristic we aim to capture in our Nicola Infrastructure and Renewable Resources LP.
Agriculture and Timber historically have a high correlation to inflation, providing us with an investment hedge. As the general level of prices and goods rise, so does the value of farmland and timberland. Additionally, infrastructure contracts often dictate that consumer prices rise in relation to inflation; therefore, infrastructure revenues are also linked to inflation.
As noted above, demand for essential goods and services are stable, and, as such, Real Assets provide a means of stable cash flow, making the asset class a good defensive position. In the case of infrastructure often there are few substitutes for the services provided, thus creating a monopolistic environment (i.e. airports). Lack of competition and the essential nature of the service provide investors with reliable returns in both economic
expansions and contractions.
* Pathways: The Real Assets Opportunity, September 2017 Issue 4, Macquarie Infrastructure and Real Assets (MIRA)
This investment is generally intended for tax residents of Canada who are accredited investors. Some residency restrictions may apply. Please read the relevant documentation for additional details and important disclosure information, including terms of redemption and limited liquidity. All investments contain risk and may gain or lose value. An investment in Nicola Infrastructure and Renewable Resources Limited Partnership is an investment in alternative asset classes. Investments in alternative funds are highly illiquid and carry a related degree of risk of financial loss. Investors should consult the relevant disclosure and subscription documents for a full listing of risks associated with an investment in alternative assets and consult their Nicola Wealth advisor and relevant professionals regarding any tax, accounting, legal or financial considerations. Please speak to your Nicola Wealth advisor for advice based on your unique circumstances. Nicola Wealth is registered as a Portfolio Manager, Exempt Market Dealer and Investment Fund Manager with the required provincial securities’ commissions.