Canada high-net investors seeking alternatives

The industry is pushing to educate street-level investors about the booming alternative segment, even as retail advisors scramble to gain access.

Canada high-net investors seeking alternatives

Canada’s high-net worth investors are seeking alternatives to traditional investments in greater numbers and are very positive about all varieties. Though alternative investments are still seen as elite and the industry plans a push to educate street-level investors, and advisors, about the booming segment.

“The survey just showed that there is a fair bit of activity, a fair number of searches being done by consultants, and there are plans of all sizes – with high-net-worth investors putting money into hedge and private equity, or researching it with plans to do so in the next few years,” said Alternative Investment Management Association of Canada chief operating officer James Burron.

This summer, AIMA Canada conducted a two-stream opinion survey on the attitudes of Canadian institutional and accredited investors and investment consultants toward alternative investments. The survey covered a range of subjects, probing respondent attitudes toward and knowledge of alternatives and desired methods of receiving information on the subject.

“The major thing is that people are generally positive in all five areas – commodities, real estate, private equity and infrastructure, so it isn’t just merely hedge – generally consultants know about all five and are positive about it,” said Burron. “And the investors are experts in it, which makes sense.”

Among consultants, around 93% said they saw investments in alternatives increasing somewhat or a great deal more activity. “They can’t really push things on clients, so that shows that there’s a bit of a pull from investors as well,” added Burron.

The AIMA is planning its next survey to gather information about alternative investments among advisors and retail level investors.

“Our next survey will be more relevant to advisors. It will be the same sort of thing, getting it out to the advisors – using hedge funds and maybe comparing it to mutual funds – asking their views, what they know and what they want to know.

“The other stream will be to retail investors, asking whether they know about hedge, what their ideas about it are, and ‘where would you get your information, from your advisor, the news, or a neighbor talking over the fence?’,” said Burron.

So far, although there is growing interest in alternative investments, there isn’t a deep knowledge at the retail level. However Burron notes that advisors have been very keen to become more knowledgeable about what is available for their clients, swarming AIMA representatives at conferences.

“Most people really don’t know about alternatives, which makes sense because they are private offerings and they don’t really hit the news unless you see that CPP [Canada Pension Plan] or teachers’ [pension plans] are buying a corporation or an airport,” he said. “It’s similar to when people were coming away from GICs and into mutual funds; people were like ‘how does this stuff work?’”

The AIMA will conduct the retail-level survey in the next six months as part of its continuing investor  education effort.

The just released summer survey provided indication on what Canada's elite investors and investment consultants were saying about alternatives.

Among consultants real estate was seen as a volatility dampener both individually and on a portfolio basis. Commodities was the least recommended and its main benefit was higher risk-adjusted returns.

Consultants gave hedge funds received high marks for being an alpha-generator in all markets and, especially, providing exposure to exotic/alternative beta such as credit and liquidity. It also had the highest number of respondents citing it for lowering portfolio volatility, providing higher risk-adjusted returns and uncorrelated return streams. Private equity was not seen as having low volatility, ameliorating drawdowns nor producing alpha in all market conditions. It was seen to have higher risk-adjusted returns, however. Infrastructure’s benefits were amelioration of drawdowns and lower volatility.

Among investors, real estate had a neutral to favourable view from investors with none citing it as very negative and the bulk noting it as positive (35%) and very positive (25%). Commodities and hedge funds were almost exactly the same with a slight edge to hedge funds. Private equity was not viewed positively with the highest number of very negative views and no very positive ones. However, it had the highest positive responses (50%). Infrastructure garnered the highest number of positive views (57%) and very high very positive views (11%) with only one very negative view.