This is the ninth in a series of articles in our special report on alternative investments in Canada. To see all the articles, click here.
Throughout the month of May, our special report on alternatives has taken a closer look at an asset group that has been playing an increasingly key role in the portfolios of family offices. From their reduced volatility and enhanced returns, to the non-correlation to public markets, alternatives seem to be a bright light in the face of uncertainty.
On May 22, we gathered four experts in the alternatives space to answer a few key questions: What exactly is an alternative investment? How important are good managers in this asset class? And how much of a portfolio should be allocated to alternatives?
The expert panelists:
Robin Tessier, Partner and Head of Product & Solutions, Canada, Sagard
Dale Powell, Director, Investments, Citibank Private Wealth
Christopher Foster, CEO, Foster & Associates
Dan Riverso, CEO/CIO, Jesselton Capital Management
The discussion was moderated by Canadian Family Office’s managing editor, Joe Chidley.
*This transcript has been modified and condensed where possible.
JC: Hello, and welcome to today’s panel. I’m Joe Chidley, managing editor of Canadian Family Offices, and it’s my pleasure to be moderating today’s discussion, which features four experts in the area of alternative investments, who collectively bring deep knowledge of the subject to the table.
Before we get to introductions, one housekeeping note for the audience. At the bottom right hand corner of your screen, you should see a help button. If you encounter any difficulties during a presentation today, just click on help and you’ll get some assistance promptly.
Okay. On to our topic. It’s a big one, alternative investments.
As you know, alternatives can comprise a big, wide and heterogeneous universe from private equity to farmland and just about everything in between. I think there are a few bottles of wine in there as well. There are, in short, far more corners of this universe and maybe a few black holes than we can get to in one hour. But hopefully we can explore some of the more interesting opportunities in this vast field, and in particular, the way that alternatives factor into the portfolio mix of family offices to help guide us on that journey.
Our four panelists today have graciously agreed to share their wisdom. Thank you, gentlemen. I will let you introduce yourselves in turn.
Dale, do you want to kick things off?
DP: Sure. Thanks, Joe. Hello everybody. I’m Dale Powell. I lead the investments business for Citi Private Bank in Canada. I’ve been at Citi for nearly 13 years. I’ve done investments for, uh, we’ll call it 30, I prefer to call it 30 years. It’s longer than that, but we’ll round it to 30. I lead investment counselors in all of Toronto, Montreal, Vancouver and New York. I have played a part in raising about a billion dollars in alternative investments for the bank over the time that I’ve been here. I’m CFA charter holder and a past board member of the Toronto CFA Society.
JC: Okay, thanks Dale. Great to have you here. Robin.
RT: Good afternoon everyone. My name’s Robin Tessier. I’m a partner and the head of products and solutions at Sagard. Sagard is Canada based global alternative asset manager. We manage about $30 billion, mainly in the four buckets of venture capital, private equity, private credit, and real estate. Before joining Sagard about three and a half years ago, I was a managing director at BMO Capital Markets and before that CIBC Capital Markets. And I was a corporate lawyer before that.
Also a CFA charter holder like Dale. Pleased to be here too.
JC: Great. Thanks Robin. Good to have a corporate lawyer on the panel. Christopher?
CF: Hi everybody. I’m Chris Foster. CEO of the Foster Family Office Group. Before taking on that role I was working pretty exclusively in the alternative space. My first job, funnily enough, on Bay Street was with Friedberg Mercantile Group. I don’t know if you guys recognize that name, but they were actually sort of pioneers in the alternative space.
They launched, what I think is Canada’s first real global macro hedge fund in the very early nineties. After doing that, I was running a big futures team at Scotia, serving a whole bunch of alternative investment managers. Then I went on to run my own asset management firm, running alternative investment strategies in, options arbitrage global macro.
And so when the opportunity came up to take over my family’s wealth management practice, I saw it as a great opportunity to bring alternatives into the wealth channel. At the time there was a lot of trepidation about alternatives back then. And there was certainly not a lot of experience with alternatives inside the wealth channel. So anyway, that’s what I did. I brought in a whole big slate of alternatives and married it to our family office group. We’ve been running low volatility portfolios ever since.
JC: Okay, great. It’s great to have someone at a family office bringing the perspective on alternatives. Dan?
DR: My name is Dan Riverso. I’m currently the CEO and CIO of Jesselton Capital Management, which provides bespoke fund services for family offices. Prior to that I ran a family office here based in Toronto called Continuum Private Wealth Partners. And prior to that I was at BNY Mellon, where I was director of research. And throughout that time I’ve been covering alternatives. Everything from hedge funds to private debt, to farmland to music royalties.
JC: This is a stellar group of individuals to talk about alternative investments today. I will tell you that within the editorial halls of Canadian family offices, we always have some debate over what qualifies as an alternative and what does not? So I’m going to start you off with a very simple question. What is an alternative investment? Exactly. What is one, what isn’t one?
CF: I’ll take that one. Alternatives is kind of like other amorphous kind of expressions like hedge funds or family office. But by the way we think of it at, at our shop, it’s a definition of exclusion. If it’s not an equity, it’s not fixed income. If it’s not a structured product, if it’s not a money market instrument, then it’s probably going to be an alternative.
DR: I would agree with Chris’s comments. Generally, I look at it as anything that isn’t traditional stocks and bonds.
DP: Agree with Dan. Alternatives for us are anything that isn’t publicly traded. Not a long only stock, not a long only bond or cash instrument. Probably alternatives.
RT: I would probably also add that I think it’s becoming a much richer investment universe. I mean, I think, you know, Chris, you mentioned that the definition arises by exclusion, right? I mean, it’s alternative, therefore it’s not the two big buckets, stocks and bonds, which candidly, is [inaudible]. It’s becoming a smaller investment universe with, you know, a shortage of new issues and IPOs and just more private companies than public companies. So I think some of the other more niche asset classes that some of the gentlemen listed are certainly valid. I would also say, I mean, at Sagard we’re also … I think we consider ourselves an alternative manager, but within alts we’re private. So it’s an even smaller box, we don’t do hedge funds or of course you can get into liquid alts. We’re more private focused than alternative, but we certainly, I think it’s a much, much richer investment universe than it has been historically.
JC: Good point. What’s your sense of how alternatives are faring these days? There’s been a lot of attention paid to volatility or chaos in public markets and on the macro economic landscape. What’s your sense of how alternatives are faring?
DP: I’ll take that. It’s like saying? How are stocks doing? Some are doing well, some aren’t. It depends on the selection you make. There’s no broad measure … it depends on the product.
DR: I agree with Dale, but the rapid rise of rates has impacted hedge fund returns, it depends on the strategy. And not just hedge funds, but alternatives as well. Definitely some have held, some haven’t done so well.
CF: 2022 was a pretty great year for alts. That was despite stocks and bonds both sliding considerably. I think that was largely because private equity was holding up pretty well. You know, and I think for most alts allocations private equity is a decent sized sleeve. This year, unfortunately, private equity has been soft during this period of market volatility. So we’re actually finding that our alts bucket as a whole is a little softer this year versus, you know, during what was really a calamitous year in 2022.
JC: No, I was just gonna dig down a little further into private equity. That is one of the more discussed area of alts. There has been some coverage this year re: challenges, IPO pipeline drying up. Any thoughts on private equity is now and where it’s headed?
RT: We have a unique lens into this. The capital markets and the effective capital markets is certainly a valid one. As you may know in private equity you’re buying a company, you’re hoping to improve it, change the capital structure, improve management, and then ultimately sell it at some later point in time….[inaudible]
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Those could be, you know, another strategic buyer, another, another PE firm. And of course, you know, the public markets. Sometimes joke around here that, you know, it’s, there’s this state of what we call constipation in the public markets. It’s just there’s not the ability to recycle and, and turn the capital, right. Which forces some of the managers to become a lot more creative about creating liquidity, right. For underlying holdings or portfolio companies. That’s something that we keep a very close eye on it, obviously it’s something we can’t control, certainly the public markets, but, uh, I think that’s something that is a really big factor over private equity.
DR: I think it also lends to growth in the secondaries markets as well. Generally, I think given the structure of the PE market and where we are in the cycle. A lot of [inaudible] spreads have gotten tighter over time. Lots of growth in that area.
DP: Agree with you Dan. We’ve seen that in the product side. How do we see the sector looking forward? Biggest factor is rising interest rates. The cream will rise to the top. People who know what they’re doing will do fine. It’s easy to do well with free money. Good managers will continue to do well. That’s a positive for the sector overall.
JC: Do tariffs and macro landscape factor in here? You’ve both mentioned rates. How much has the uncertainty rocked alts?
CF: The Trump admin is a chaos vortex. It’s very hard to plan and value a company under those circumstances. Rates have been coming down and that’s helpful. But until we get some level of macro certainty the deal pipeline will remain slow.
DP: I may have a slightly different view. Listen, we tell our clients we don’t manage product, we distribute product of managers to our clients. And so frankly, we tell our clients this is a 10 year investment, it’s probably 12, could be longer than that. What happens today or next week. It just is really not, it’s really not relevant to the discussion. So yes, it, it costs some short term stuff, but for the validity of the investment and the reason that our family office would make the investment tariffs or whatever is in the headlines, we’re investing for 10 years or 12 years down the road, not next week.
RT: Agree with both. Back to Chris’ – the tariffs / uncertainty – it affects the public markets as well. Whether it’s created by rates or tariff policy affecting the public, it affects the private market too. It’s not like we’re entirely divorced from the public market. So, you know, the private markets or the alts, they may not be as subject to the up and down mania of the public markets, which we’ve seen [inaudible] over the past couple of weeks, which is shocking. It still affects tone, right? It affects tone, deal making, financing, even investment. It’s not the easiest. It slows and dampens things.
DP: It’s uncertainty. It’s easy to say you’re doing 10-12 year investment, but we are only living in this uncertainty. If you’re dealing with entrepreneurs, as I’m sure all of us do, and we do, ‘Hey, listen, they’re worried about their business, how do you make a sensible business decision aside from what you’re investing outside?’ So I, I don’t want to minimize it, but, we try to get around it – this is a long-term investment.
JC: Okay. I mean, one of the reasons to get exposures to alternatives in the first place is because of the non-correlation to traditional publicly traded securities. Are, is your sense that, I mean, the past few months, would certainly be a test case for that proposition, right? In terms of volatility, is, your sense that that alternatives are fulfilling that function well now, during this chaos?
RT: Generally, yes. The pools of private capital they are, they are of course, valued and they move and the marks. But I think, you know the reason that actually is a bit delayed is because there is a lagging effect to the valuation and the marks, right? Whether it’s a, a single portfolio or asset or fund of funds, I’m not saying that’s perfect, and I’m not saying there can’t be marks up or down, it’s just a lagging effect. So the other point too, and I highlighted it when there’s not another vehicle or pool on top of it, which has smaller liquidity,
that’s when – it’s one thing to throw a rock in the lake, but when you throw a rock in your bathtub, it really has an effect, right? So when you, when you shrink the pool of liquidity, any, if it were the five or six foot, any decision is gonna disproportionately impact everyone else. [inaduible] As appealing when everyone else wants to continue in the investment.
So I think, I think that volatility, I know people always, it’s almost a motherhood statement. They like low vol. I think they like it when other things are falling, but hey, if you’re, if you’re, if you’ve got beta and the market’s ripping 25%, it’s nice to go on that rollercoaster too. I understand why people say that, but I think they always have it with a view with downside as opposed to upside. I’m not naive about it. [inaudible] So I think, I think it’s generally provided that it’s, it’s a less amplitude, it’s buffered things a little bit, but over the long term, like private equity is generally outperformed public. So probably with lower volatility.
DR: I’ll speak to the hedge fund side of things. Generally with the volatility it creates opportunities for a lot of these hedge funds. I think some have done quite well given the volatility that’s now presented. When the market’s racing higher, there’s not much in the way of volatility they’ve lagged. The current environment gives them a bit more opportunity to contribute and produce alpha.
JC: Are there areas in alts that you think have potential right now?
CF: I’ll take that. One of our most interesting allocations right now is microcap in Canada. We think there’s an opportunity for a big revaluation in Canada. We’ve been through a lot clearly, valuations are compressed and, I think there’s a chance that, you know, the Carney administration actually liberalizes the Canadian economy, gives us a little bit more entrepreneurship. We think particularly small cap in Canada is going to do very, very well if we can escape this chaos.
We actually have allocation to a little micro-cap fund called [inaudible]. Very small. They are so cheap. If the clouds can part small-cap Canada should do well.
JC: Thoughts?
DP: We don’t do Canadian, everything we do is global. We wouldn’t bring a tiny sliver of a $25-billion fund to our clients. Our clients don’t need us for that.
JC: Any geographies you’re looking at?
DP: Europe. Simply because it’s cheaper. Most of the private equity market is and probably for most of the future will remain in the United States, but we’ve just been looking at it to non-US managers, frankly. It’s cheaper and it’s a diversification play. None of our clients are short of US exposure.
JC: Areas you think are risky in alternatives?
CF: I am very worried about private REITS. The marks that these private REITs have in the apartment and multi-family space. I don’t want to say they’re a complete fabrication, but they’re possibly aspirational. I think the private REITs are marked down pretty dramatically.
You guys probably know that down 15, 20 per cent. Rents are soft. Values of buildings are theoretically soft. But these private REITs keep on holding their navs. They have billions and billions and billions of dollars in a AUA and I fear that they have been sold to relatively unsophisticated investors. I am concerend if someone yells fire – things could get back. I’d keep a distance from that sector.
DR: Private debt. There is a substantial global rise in debt. A lot of it is tied to real estate. But I’ll also echo what Dale had said earlier. I think, you know, if you’re looking in that space, want to reduce your risk, it really comes down to the manager. You want somebody with good pedigree, good process, because there are a lot of funds out there that, again, to Chris’s points might get sort of tied up if something starts to happen.
DP: Truly understands what they’re buying. Private debt or private credit.
RT: I agree to a point. We deliberately call ourselves mid-market manager / non-sponsored. A difference that is unique. Our process is different. The banks are effectively deal takers. They get a term sheet on Monday, there’s a bid on Friday. There’s not as much due diligence. Our process is very different. We’re dealing with companies, founders, families where, you know, we have extremely tight covenants our turns of leverage are, you know, like, you know, three and a half. LTV is like 30%. So we, you know, we, I certainly appreciate those points. We focus on a much less competitive part of the market, right? It more mid-market. And so, we believe when we’re at the top of the capital stack with those protections and with those levels of leverage, we’re feeling pretty positive about it. But certainly appreciate the comments at different segments of the market. We see some of the big guys and let the collisions happen to some degree. But we’re keeping an eye on it.
DP: Good managers who know what they’re doing will be fine. Chris, you said some of this stuff has been sold to relatively unsophisticated investors, but haven’t done the due diligence. If you know what you’re doing you’ll be fine.
RT: I heard our CEO this morning say – well we are more of an institutional shop. There’s a few managers where they haven’t built it that way. Not very diversified and doing things like payment in kind. That is stuff we don’t ever get involved in. So when you see that – the biggest discipline of a credit fund is when you’re getting paid every month or every quarter whenever you’re supposed to. In our business – the convenance are so tight I liken it to driving down the Gardiner, 4 or 5 lanes, by the time you hit the guard rail, things can have gone very wrong. When things are wrong, we are right on top of them.
JC: That’s a theme that is emerging. Less about the areas of the alternative universe and more about the quality of the managers. Do they know what they’re talking about? And do they have strict governance rules?
Next question, how are family offices approaching alternatives? There’s been a lot of research into this area, including our own survey from last year, that has pointed to a growing interest into the space including private equity and private debt. Is this your experince as well?
DR: I’ll take that one. Generally, a lot of the family offices in Canada are allocated towards private equity and real estate. I think that’s just a function of the evolution of family offices. If they sell off their operating company of capital tend to dive back into things that they generally know about. A lot of it is direct deals, but they are looking to do some funds.
CF: I wouldn’t say that clients are beating down our doors asking for alternatives. I would say that wealthy families in particular are getting tired of white knuckling it through all of these big fluctuations in the market. It’s bad for your health to have to endure that. If you can show them that alternatives can help modify the volatility and help them sleep again – that is very welcome. I keep telling our advisors that volatility is bad for families – your portfolio is down 20% then your whole family is in a whole bunch of hurt. People are blaming each other. Who’s driving the ship? How did this happen? It’s unhealthy.
JC: Do you think the current market conditions make it a good time to think about alternatives?
CF: 100%
DR: I’d say more family offices are looking at alternatives. Whereas they were more traditional or even expanding beyond private equity and real estate.
RT: I don’t know how the past few months could not nudge you in that direction. Like Chris said – I don’t know how it couldn’t be helpful. For the allocators on the wealth side I think it’s auspicious.
DP: I don’t think I have any clients who don’t have alternatives in their portfolio. We take an asset allocation approach including family offices. You’ve got fixed-income, maybe some cash, hedge funds, real estate. So what’s happening in the market doesn’t particularly matter because you have that permanent allocation. So, does it provide some buffer to the white knuckling? Sure. In a lot of those cases, it’s not [inaudible]. Our clients are always interested in alternatives. A key part of our business.
JC: How do alternatives in a portfolio change the asset allocation mix? If we take the traditional 60/40 approach, where do alternatives fit nto that?
DP: We don’t have what I call happy meals. There’s your 60/40. Can I think get something different? Well no. Our go to portfolio 20% private equity, 10% real estate and close to 15% hedge funds. That’d be usual for us. And it’s not uncommon to have 50% in alternatives.
CF: We’re in almost the same place.
CF: We’re in almost the same place. Our alternative sleeve is 45%, other sleeve is 5% (gold, bitcoin etc). We are pretty spot on 50% if you include a broader definition of alternatives and that seems to work pretty well to get the beta of our client portfolios to get down to half-market levels. Markets down 20% and they’re down 8%. That’s a good result.
DP: Public markets for us have become the liquidity bucket. I hate to say it because I made my life in public markets. When I got into this business – you’re an entrepreneur, how do you make monetize? You take your company public. That’s finished. What we have in Canada now is a lot of companies that are public that shouldn’t be. They’d probably be better in a private equity structure. They don’t have the same pressure, quarterly earnings etc. It has led to the rise of private equity and non-public markets.
DR: Agree. Fixed income, and public equities have become the liquidity buckets. Alts are more illiquid. How that shakes out? [inaudible] Especially if you have a long-term time horizon.
JC: Are you noticing a difference in how family offices are investing in alternatives?
DR: I would say that most of them, generally, majority of the allocation is in private equity and real estate. Diversifying beyond those two is occurring, but it’s a slow process.
RT: I think even on, on Dan’s point too, Joe, I think, you know, the rise of secondaries really given our earlier comments about the lack of liquidity events like IPOs, new issues, et cetera, that’s really driven the rise of secondaries to some degree. Both, both driven by the gp like the manager or the LPs, which is the investors.
And so, you know, again, not being an allocator, you, you still see that like, it’s harder probably for someone to say, I’m gonna, I’m gonna sign up for a 7, 10, 12 year lp. You know, you have a J curve while the fund gets invested and then you start harvesting. So, you know, as the money keeps coming back, that is a, that can be a long and bumpy ride. Whereas on the secondaries, if you come in later in the tail, you know, you, you provide liquidity.
Like I buy some for, or Dan buys some from me. I’ve held this for eight years. I’m not taking the last dollar or nickel off the table where his clients come in. He probably demands a bit of a discount to provide me with liquidity, but when his clients take it, they’re marked back up.
So you know, I suffer a little bit, but I’ve hopefully made a good profit over my holding period. Where he steps in now gives me liquidity and he still hopes to make maybe not as much as I have made, but maybe hopefully the IRR could still be quite, quite attractive. Right. And so it’s a kind of a win-win for both our, our clients or our, or as principals. That’s, that’s how that’s happened a lot.
DR: And to Robin’s point about liquidity and secondaries, if you are worried about locking up for a long time, secondaries is a good, you know, a good way5
to access and private equity without locking up for an extended period of time.
CF: I agree with your comment Dale. Pricing has improved. Gone are the days that if you invested in something a little exotic you just weren’t gonna get any pricing on it and you put it with your dealer and it was just gonna go right to zero. Because nobody was populating any pricing on it. GPs, manufacturers are getting much better at pricing these things. Makes it easier to hold these things.
DR: That comes with mass adoption of these strategies even at the retail level. You know, there’s a number of private equity strategies, and we can debate the merits of those, but, more adoption leads to more liquidity.
DP: A maturing of the market.
JC: Are Canadian Family Offices leading the way in innovation?
DR: Playing catchup. I was talking to a hedge fund and they think we are 5 years behind in terms of more esoteric type strategies / outside of traditional.
CF: In defence of Canada our product shelf is smaller. We were early to market with cannabis. We were early to market with cryptocurrencies in fund structures. We were allowing spot crypto into funds before the Americans.
JC: Can we talk a little bit about the best practices for family offices when they’re managing opportunities and alternatives? Maybe we can start with Chris. What is your process for picking a part of the universe for managing that, for managing the managers, and so on? Can you walk us through that a little bit?
CF: Well, the process is not just an onboarding process, it’s a constant review process for sure. One of the things that makes our firm a little bit different is that we put a big emphasis on qualitative due diligence. It’s very easy to do quantitative due diligence once you have a track record that you can evaluate. But quantitative stuff is always backwards looking, first off, and the qualitative stuff to me is much more important.
Understanding exactly how a firm deals with conflicts of interest gives you a window into how seriously they take their fiduciary duty. Firms that are absolutely fierce on conflicts—I just love it, because you know that they consider managing other people’s money a sort of priestly responsibility.
We always do site visits, for example. We go in and we see the people, we look them in the eye, we see who’s working in the office. That’s really important. It’s really vital, I think. If you know somebody—say you’re allocating to a new fund—find out who worked there. If there’s somebody you know who used to work there, take them for lunch. There’s stuff that people will tell you over a drink or a lunch table they would never put in an email.
That kind of qualitative research is really, really important. You can analyze their track record all you want, but if they’re dishonest, it’s not going to show up in their track record. So I think that kind of stuff is really key.
DR: I would agree with all that, and just add under both qualitative and quantitative, doing your operational due diligence as well, especially if the investment utilizes leverage. Talk to the service providers. There are just layers and layers of due diligence that need to be completed to ensure you’re comfortable with the investment.
DP: We have a team of people in offices around the world, as a matter of fact, for Citi, that do this on behalf of our clients. They’re doing exactly what you guys are speaking about. I can hire an intern with better Excel skills than me to go through performance. Anybody can do that. It’s the operational due diligence, as you’re saying, Dan, and the other things, Chris, that you’re speaking about on the due diligence front. It’s critically important.
Frankly, for most of the family offices or the ultra-high-net-worth investors that we deal with, they don’t have that access themselves. We can get it. Second of all, they just don’t have the resources to do it themselves either.
For a manager to make it through our screening process before we offer something to our clients, it’s typically six to nine months worth of due diligence work. I’m told it’s very intrusive, and that’s a good thing. It’s not because we’re nosy, it’s because you have to know that thing exactly, as you’re saying, Chris. It’s not the run-of-the-mill stuff that’s going to get you into trouble.
And frankly, most of the time, the huge majority of the time, it’s not something nefarious that’s going on. It’s simply that there isn’t a business process around these things that says, yes, you take being a steward of your clients’ money seriously—and here’s how we can prove it.
For us, that due diligence is critical. And frankly, if we’ve done five versions of a fund with a manager and they come to us with fund number six, they go through the same process for fund six as they did for the previous five. I think that’s the critical piece in all of this.
JC: Robin, any thoughts on that from your side?
RT: Yeah, I was just thinking about—I’ve been on the capital markets, I’ve been on the underwriter side, so I’ve done the rubber glove diligence and I totally get it. With my co-parent on the receiving end now, I think it’s interesting because, listen, our process is very institutional. So I think Dale’s comment about six to nine months—I’m nodding because that’s exactly what we’re dealing with, right? We’re dealing with institutions where it’s very extensive diligence—data room, site visits, everything that Dale was saying. We’re already used to it.
Candidly, when you’re speaking to an institution, they can deploy a whole team to do this. It’s obviously harder the smaller the firm. And so part of it too is—it’s hard to do this—but what one should aspire to is, again, I think Chris used the term “priestly.” It’s sort of a calling. But you want the allocators, your partners, to have trust.
We all realize that it’s still a risk business. Things can not happen the way we all plan. We all know this is not GIC land. But whether things transpired the way one expected or not, you want to have trust that your manager is working, is transparent with you, and is doing what they can to optimize returns and get you information for your client. For us, that’s all we want. Talk to the top of the house. If you do nothing else, please come away with trust that this firm and these partners will be good stewards of your capital.
And a good way to do that, candidly, a lot of times, is when the principals, the PMs, are invested in the same strategies. And many times on a levered basis. Nothing focuses your attention like a levered return that you are responsible for and you have a lot—or most—of your net worth in. That’s probably the biggest alignment point my friends could ask about. For us, that’s just table stakes.
Again, I know not everyone can do that. I’m not saying that guarantees anything, but at least you know that people are trying to do the right thing in the same way they are for your clients.
DR: Yeah, and Robin touched upon something—and that’s transparency. Getting transparency from a manager helps to build trust, especially when things are not going well. If the manager is communicating, there’s some quality there.
JC: Okay, so we’re in the realm now of risk management. What are the risks in alternatives that investors in traditional securities might not face?
RT: I think the biggest and most obvious—as a manufacturer—is just liquidity. It’s not stocks and bonds. It’s not 60/40 plus one or two. So liquidity.
Candidly though, this audience—the clients of this audience—probably do not need that as much as most. But on the other hand, I’m human, I’m an investor, I like to be able to see my assets and my banking and know that I could access them if I want, or value my house. It’s a bit trite, but most of these clients, I suspect, do not need it as much as they would like.
So I think that is the biggest risk. But I don’t think it’s necessarily a problem. I think it’s just something that my colleagues would have to make sure—and we, candidly, we have to do this too—that they understand the price of the goal of this excess return.
You are compounding for ideally a longer period on the assumption and goal that you will be better off over time than being in a more liquid vehicle. And again, I think our friends have said this—it’s not everything. I think Dale was saying it’s half the portfolio. So as long as you can manage that and come up with a liquidity ladder or liquidity needs, you can all do that for your clients on a singular, standalone basis.
I would say candidly, sometimes the product itself has its own liquidity sleeve or basket. So sometimes you need it, sometimes you don’t—because if you bought it as a single solution, it hopefully has some of that in there.
But if you’re building a portfolio, as the gentlemen here would, they’re going to have to manage that on their own or within the portfolio. That’s what I would say.
CF: Yeah, I agree, Robin, that liquidity is something our investors typically don’t need that badly. So how material a risk is it? I would say gating is a much more material risk. That’s illiquidity in extremis. That is the kind of illiquidity you never really want to have happen.
I would personally give up a hundred basis points of return if I could be guaranteed that I would never be gated. Being gated in a fund is death. It is the worst thing that can happen because, first off, you can’t actually value the security accurately, so you don’t know how to rebalance or reallocate. That’s a problem.
And it’s all your investors want to talk about—that one security—even if it’s a deminimis part of their portfolio. It becomes a red herring. All they want to know about. So from a relationship management point of view, it’s absolutely toxic. Really bad.
JC: Dale?
DP: I would agree with what both Robin and Chris are saying. The biggest risk, I think, is liquidity. And Robin, I think you’re exactly right—most clients don’t really need the liquidity they think they do.
I’d put it a slightly different way: if you told a client, “Listen, this is a 10-year fund,” and it’s dragged into year 14, but it’s doing fine and it’s doing what they wanted—yet you positioned it as 10 and now it’s longer than expected—that to me is the bigger risk on the liquidity side.
Because exactly as you and Chris are both suggesting, you manage the actual day-to-day cash needs out of the other side of the portfolio, not the alternative side.
And Christopher, you’re exactly right. Gating on a hedge—it’s a killer. It’s a killer. That’s an account-closing event.
JC: Okay. I think we’ve covered off risk mitigation and risk management through the due diligence discussion—which was great, by the way. Thanks, guys.
Can we talk about crypto for a minute as an alternative investment? It seems to be doing pretty well these days, I think in part because of the congenial environment it’s receiving lately in the States. Any thoughts on crypto?
I mean, our research has shown—and I think some others too—that family offices are pretty reluctant to embrace cryptocurrency. Should they be changing their minds?
CF: I’ll take that, Joe.
We have a small allocation to Bitcoin, and I thought clients would query it a lot more than they have. So I’m not actually detecting a high degree of reluctance. But crypto is a very broad moniker. It involves both the industry and the coins. I have no view on the industry writ large, and I don’t think any of the coins apart from Bitcoin are actually going to show themselves to be a decent store of value.
But Bitcoin itself, I think, is proving to be a very strong competitor to gold—as a non-confiscatable asset. So if you can imagine having gold in a long-term portfolio, then I think you should equally imagine having some Bitcoin.
It’s one of the only cryptocurrencies that’s actually limited in the amount of supply that can be created, and it’s grossly outperformed, and it’s got the longest track record. So that’s the only one I would actually consider as a long-term investment.
I’m finding clients are getting more receptive to it.
JC: Anyone else have a thought?
DR: Maybe I’ll take a bit of the other side. Crypto is generally highly correlated to global liquidity. It’s also correlated to tech stocks. There’s a lot of retail participation in it as well. It’s been around for a while. We’ll see where it goes.
It has been adopted, but there is some reluctance and it’s still somewhat unknown. It might be more for the future generations of family offices to adopt rather than the current generations, just because there might be more comfort there.
DP: If I put my compliance hat on, I’ll leave it at—we’re not involved with crypto.
JC: Ah, okay. Understood. That’s a big hat. I’m sure the compliance hat is big.
I meant to ask too, just getting back to risk. I’ve read some opinions that the lower volatility of private equity, for instance, is more about the lack of mark-to-market reporting. Perhaps some massaging or creative valuation is going on. What do you think of that criticism or questioning of private equity? How would you respond to that?
RT: I’ll maybe offer an initial thought. We’re aware of it. I think there’s a degree of lagging involved, and it depends on the asset class. I think Chris was talking about private REITs, but if you talk about equity—specifically private equity—sometimes it depends on the portfolio.
If it’s a fund-of-funds, you may have a fund that holds a whole bunch of other GPs. You’re always reliant upon the inflow of information coming up. So if you are in a fund-of-funds, you’re spraying to a number of different GPs and reliant on that information coming in. That just creates a time lag. I get that. It’s not like the next day you know the closing price. That’s going to be hard to deliver.
Where you can get some comfort, not perfect, is with third-party external valuations. Usually, you get the marks from the other GP if it’s a fund-of-funds, so that’s arm’s length. But there should also be a third-party valuation agent. I see some nods here, so I can’t say that’s perfect, but at least it’s an attempt at an objective, independent valuation. At the end of the day, it’s private—so that’s ultimately all you can aspire to.
Where the rubber hits the road is when the asset is sold. That’s when you get the real clearing price. I think that’s what I’ll offer on that. I realize the frustration with the delay. It’s maybe an information delay, which we’re sympathetic to, but I think this provides a bit of context around it.
DP: Totally agree with Robin. Is it a valid criticism? Sure. But it’s just part and parcel of investing in alternative assets. They’re not marked the same as a public equity portfolio, nor should they be. So you shouldn’t expect them to be.
What it comes down to—and what we do get questions on—is how valid the marks are that they’re putting on things. And exactly as you say, Robin, if you have a third-party evaluator, it takes most of that debate out of the question. This is not us sitting around throwing numbers out in the air. There’s at least somebody who does this professionally, who came up with a value, and it’s as close as you can get.
RT: I’ve done investment banking and valuation—there’s a way to value private companies, there’s a way to value pre-IPO. This is not a science. As much as we all aspire to have finance become a science, there’s always a range. Even if you go get a price on your house, tell me what it is. The agent’s going to tell you the comps in the market and your little area and all this and that. But if you had a number, and then tariffs happen—you all understand this—it’s stale, and it’s path dependent on conditions.
So, it’s just imperfect and imprecise, as opposed to a final price as of 4:00 PM last night or something. I get it, but people have to understand that degree of opaqueness when they go into this—or maybe it’s better to say lagging.
CF: Mercifully, it’s actually a problem that’s fairly restricted to private equity. If you have a diversified portfolio of alts, there’s going to be 60–70% of them that actually have very frequent marks. Your hedge fund strategies are largely trading in public securities. They’ll give you a frequent mark. Your public REITs are frequent. Your merger arb strategy is frequent. So, yes, it’s a problem—but not a big one.
DR: To Chris’s point, when you’re reporting to clients and showing them volatility numbers, there has to be an asterisk there. Just be aware that it might not truly reflect the entire portfolio.
JC: One final question—we only have a couple minutes left. The profusion or growth of retail private funds, both in equity and credit—is that a good thing, a bad thing, or an indifferent thing from your perspective?
RT: I’ll start. I know retail is a bit different. We think it’s a good thing—but with the proper guardrails and structure.
We have a few evergreen offerings that have the same strategy, structure, team, and DNA as our institutional class. A lot of times, they’re parallel—whether it’s borrowers or finance vehicles.
The big thing is making sure people understand that—whether it’s an advisor or the end client. That’s something we have to focus on. We already touched upon liquidity, which—if we’re talking not family office retail, but real retail—that’s more of a concern. So that becomes a bit of an elevated topic.
There’s a two-minded approach to it. We have structures—like RSPs—which are meant to be long-term compounding vehicles. Invest for 40 years, retire, then access it. But most of the things regulators ask us to include are redeemable on demand, which undercuts that long-term compounding goal that even governments and regulators suggest would augment retirement outcomes. So they’re kind of at odds with each other.
We’re always trying to thread that needle—to make sure we can do that while staying true to the core and essence of the strategy, with a unique nod to liquidity. I don’t think it’s easy, but I do think it’s important.
I hear the word “democratization” a lot. People hear that and think it’s a good thing. But it’s not exactly democratic like Canada in 2025—it’s maybe more like the US in the 1700s. Not everyone had the right to vote. Not everyone has the same access.
If we can broaden it, it’s a little bit like asking: why should CPP be able to do this, but not Dan Riverso personally? So I think it can be a good thing—but again, it’s got to be structured appropriately.
CF: Just some final thoughts. I agree with that, Robin. My concern about the democratization of alternatives is that there’s this eligible investor exemption you’ve probably heard of. You can be a relatively unsophisticated investor and invest in an alternative investment strategy for—I think the number is $30,000 or something.
Investment advisors through the bank-owned channel don’t even know what questions to ask when evaluating an alternative investment. It’s too much to expect individual retail investors—investing directly through their EMD or a discount channel—to be able to ask the right questions. I’m a bit concerned about these alternatives going too far down into retail.
RT: To be clear, Chris, when I say I think it’s a good thing, I’m not saying direct access. I mean through the intermediation of an advisor, for sure. So I’m with you on that point.
DR: I’d just add one last point. I agree with my co-panelists. You have to review these structures. As Robin pointed out, a lot of them have liquidity buckets. The returns will be a bit lower than a traditional private equity fund—just on the private equity side.
But to Chris’s earlier point, you also have to look at the gating provisions. You have to think about what might go wrong if you’re an advisor reviewing these types of strategies for your clients.
RT: We talk ourselves out of business all the time around the office with people who say, “Oh, I want to buy this.” And I’m like, “Are you married? Have you bought a house? This is not for you. Don’t do it. You’re not accredited anyway.” So even among friends and colleagues, we try to make sure it ends up in the proper hands.
JC: Okay, gentlemen, I’m going to have to leave it at that because we are officially over time. I’m probably getting screamed at by the producer. I can’t hear him though.
So I just wanted to say thank you to Dale, Chris, Dan, and Robin. That was a terrific conversation. I don’t think we covered every corner of alternatives. I’d like to hear more about music royalties at some point. And I think we could probably do a whole hour again on the democratization of private investment.
But we’ll have to leave it there. Thank you to our audience for joining us. Thanks again Dale, Chris, Dan, and Robin. Hope to speak to you again soon, and have a nice day.
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