Canadian retail investors to benefit from private equity-replication strategy developed through exclusive partnership
Derived from extensive research in an exclusive partnership with Randolph Cohen, Ph.D. of Harvard Business School, the Mackenzie Private Equity Replication Fund seeks to provide access to the amplified return and managed volatility characteristics of U.S. private equity buyouts.
“Generally, private equity has historically exhibited less downside than traditional investments during periods of market stress and has outperformed public markets during challenging economic conditions,” said Michael Schnitman, senior vice president and head of Alternative Investments, Mackenzie Investments. “To date, retail investors have had limited access to private equity risk-return opportunities.”
The investment profile of private equity is characterized by features such as active exposures to specific industries, leverage, and volatility management. The Mackenzie Private Equity Replication Fund seeks to replicate this by investing in publicly traded U.S. companies with characteristics similar to those PE firms require for their investments such as high quality, elevated profitability, and attractive valuations.
The fund will employ financial leverage in order to resemble the process used by PE firms in leveraged buyouts, while managing volatility with a tail risk hedging strategy. It aims to outperform a broad index of small- to mid-cap U.S. companies, which is most closely representative of the area targeted by PE firms.
“We believe that through dedicated research and quantitative expertise, public markets can be leveraged to achieve similar returns and volatility levels to that of U.S. private equity in a format that offers investors daily liquidity, high transparency, and low investment minimums,” Schnitman said.
Arup Datta, senior vice president, head of the Mackenzie Global Quantitative Equity Team and Nelson Arruda, senior vice president, portfolio manager and co-lead of the Mackenzie Multi-Asset Strategies Team will manage the new fund. Professor Cohen’s firm, PEO Partners, will also sub-Advise the fund.
“We believe the collaboration between specialist teams from our boutiques and thought leadership from our academic partnership will result in disciplined security selection, portfolio construction and downside mitigation processes,” Schnitman said.