White paper urges action, recommends emerging manager programs to raise Canada’s profile in global industry
A new industry whitepaper is calling on Canada to provide additional support to local emerging alternative investment managers.
In its newly published paper, the Alternative Investment Management Association (AIMA) Canada said that alternative investments are set to play a growing part in portfolios among both retail and institutional investors. But despite the perception of prestige and exclusivity associated with alternative asset managers, they are often small businesses that require support to thrive.
According to the paper, many of Canada’s emerging alternative fund managers manage less than $250 million; they may start with as little as $10 million in AUM, with less than 10 staff. As of 2018, the average fund for alternative asset managers was around $35 million; various calculations from AIMA members place hedge fund assets in Canada at roughly US$40 billion, while assets within alternative mutual funds and alternative ETFs are roughly $13 billion.
“Emerging alternative managers struggle to access capital and grow and scale their business in a competitive landscape that favours larger players,” Belle Kaura, chair, AIMA Canada, who is also VP Legal & CCO at Third Eye Capital, said in a statement.
Aside from competitive risk-adjusted returns, Canadian firms are increasingly required to integrate ESG and sustainable finance into their practices as well as comply with enhanced regulatory requirements across global jurisdictions. There’s also a growing need to incorporate big data, alternative intelligence and machine learning capabilities, and alternative data to consistently deliver alpha, all of which contribute to an escalating war for quantitatively skilled talent.
“As alternative asset classes become more central in investor portfolios, it is important for Canada to be at the forefront of the alternative asset management industry globally and to ensure a robust ecosystem for emerging alternative fund managers to flourish both at home and abroad,” said Claire Van Wyk-Allan, managing director, and head of Canada, AIMA.
To support the growth of the local industry both at home and abroad, AIMA Canada put forward 11 suggestions for programs to support emerging managers in the alternative investment space, including:
- Establishing a pool of capital to be distributed to select managers;
- Create shared databases of financial and non-financial data, including alternative data;
- Establish shared access to responsible investment consultants for ESG integration at the firm and fund levels;
- Create a fund-of-fund solution that provides single-ticket access to a variety of Canadian managers;
- Promoting alternative investment education in universities, including student grants for Chartered Alternative Investment Analyst (CAIA) programs; and
- Increase independent product access and reduce hurdles associated with internal risk ratings and allocation limits.