Equities are surging but advisor urges caution over what stimulus will do to real return and spending power
While the equity markets surge and investors breathe a sigh of relief after a stressful 12 months, one advisor has warned that we are hurtling towards a retirement crisis.
Arthur Salzer, CEO and CIO of Northland Wealth Management, believes that while pensions will continue to do their job and pay out, the real question will be what that money can actually buy you when the time comes to slide away from working life.
“People will get paid by their pensions, whether they are the defined contribution plans or the registered savings plans that are going to be converted to RRIFs,” Salzer said. “The problem will be: what will we be able to purchase with that cash flow stream?
“We're running into a situation globally, where a lot of stimulus is being brought into the marketplace in order to stabilize credit markets, equity markets, and to provide some stability to the local economies. But this is a large amount of debt that's getting added. It's a large amount of new money that's being produced, and it's likely that the easiest way to pay back this new debt will be through monetization.”
As a result, he added, asset prices may go up but you will be able to purchase less with them. “The last time we had this type of situation was in the early 1970s and although you saw equity prices appreciate, the real return with inflation was negative. And I think that's the type of situation we're going into now.”
Salzer, meanwhile, is a leading proponent of alternative strategies at his family office, including a much-researched stance on Bitcoin. Private equity is also an area that continues to gain transaction among investors given the travails of bond yields.
Salzer said this area is a lot broader than most people have an appreciation for and explained that opportunities go beyond the large leveraged buyout firms, which is the typical area that people associate with private equity, and venture capital on the growth equity side, which involves investing in technology names such as Shopify, before they become public.
He said: “One of the growing areas that should be of most interest to investors is secondary private equity; buying existing private equity portfolios a third or three-quarters of the way through the life span of the fund.
“We’re starting to see opportunities here because as investors had over committed to certain funds, and are looking for liquidity, secondary private equity funds now have the ability to provide the cash that's necessary to the sellers, but do so at a discount to net-asset value.”