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Finding Balance – Alternate Asset Classes

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Consider this; when famed business mogul Elon Musk ‘tweets’, and public equity markets bounce one way or another in reaction, does the valuation of that prominent family-owned ag-equipment manufacturing business in Portage la Prairie also bounce? 

Adding alternative asset classes, such as private equity, private loans, real estate, and infrastructure to a balanced investment portfolio has become increasingly attractive for investors. Alternatives tend to be less correlated to the broader economy—including the effects of rising rates, inflation, and Mr. Musk’s tweets—compared to traditional asset classes like stocks and bonds. 

One of the most widely held alternatives among investors is private equity. Investors with exposure to this asset class are afforded partial equity (ownership) of privately-owned companies that they may not otherwise have access to (like the hypothetical ag-equipment shop in Portage), unless perhaps they are a family member or close friend of the owner.

Providing capital in exchange for equity in private companies can be an excellent source of potential return for investors when coupled with the oversight of experts.

At Connor, Clark & Lunn Private Capital Ltd., where appropriate, we introduce clients to our affiliate, Banyan Capital Partners. Through Banyan, clients can invest in privately held, mid-market companies with a track record of strong operations and consistent cash flow. Banyan works with owners and managers to drive efficiencies and spur growth. 

What gives investors confidence is that alternatives have been well-researched, and institutional investors have recognized their merits and value. Further, notable and sophisticated institutional pension funds–such as the Canada Pension Plan, the Ontario Teachers Pension Plan, and the British Columbia Investment Management Corporation–include alternative assets in their portfolios.

It is no secret that it is harder than ever for investors to achieve their desired returns from the traditional stock-and-bond investment portfolios that have performed in the past. This is because the investment environment has evolved significantly over the past twenty years, with several factors changing portfolio dynamics in ways not expected to reverse anytime soon; undoubtedly this will continue driving investor demand toward investment in alternatives.

This content is made for informational purposes only and the views expressed are those of the author at the time of publication and are subject to change at any time. This content has been prepared without regard to the particular individual financial circumstances and objectives of any individual who receives it and nothing in this post constitutes, or is a substitute for, legal, accounting, tax or individually tailored investment advice. As such, as you consider this material, you should consult with independent professionals in those areas regarding your individual circumstances. This information is not an offer to sell or a solicitation of an offer to buy any securities and is not to be used as a sales communication.

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Ben Findlay

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