Members of Tiger 21, and its Toronto chair, on what they’re investing in now

Article content

It’s no secret the Canadian economy isn’t exactly thriving. While it has performed better recently than many forecasters expected, consumers’ high debt levels, insolvencies and high mortgage rates are hindering its rebound, according to Deloitte’s April 2024 economic outlook.

Not surprisingly, advisors working with ultra-high-net-worth clients aren’t shy about using the word “recession.”

Thane Stenner is the founder of the Canadian chapter of Tiger 21, the global network of ultra-high-net-worth entrepreneurs, investors and executives, and he’s bearish at the moment. “Our data [shows] the Canadian economy is slowing quite dramatically,” he says. “Insolvencies are spiking dramatically.”

He predicts interest rates will come down 200 basis points over the next 18 to 24 months, beginning as early as September. The Bank of Canada, he says, “is walking a tightrope because if it lowers rates too much, too fast, that’s possibly inflationary,” says Stenner. “We’re basically bumping into what some would call a minor recession right now.”

Here’s what two Canadian members of Tiger 21 and its Toronto chair had to say about the state of the economy and where they are investing now.

Thane Stenner, senior portfolio manager and senior wealth advisor, CG Wealth Management Canada and USA, Vancouver

“I wish I was more positive,” says Stenner. The next 24 months are going to be volatile, he predicts. “The volatility index has been literally at an all-time low the last 10 years. So, the water’s too calm right now.”

On mortgage renewals: “In 2024 through 2026, something like 77 per cent of all mortgages are coming due, and most of them are going to come due with rates that are probably 30 per cent higher. People are paying with after-tax dollars, and they’re going to pay $300, $500 or $1,000 more per month.”

On real estate: “There will be investment opportunities in real estate. I think it’s too early, but I’d say in the next 18 to 24 months, there are going to be some potential really strong buys, both private and public. There’ll be a softening in that market.”

On commodities: “Commodities is an area where we’re currently overweighted right now, thankfully. Real assets, commodities, critical minerals, gold miners, silver miners, uranium, copper – the resource market is extremely undervalued vis à vis the broad S&P 500. So, I think we’re in very early innings of a long term bull market in commodities and in mining and resources. The whole area should be quite ripe for a lot of activity like M&A.

“Interestingly, something like only 1 per cent to 3 per cent of portfolios in North America have gold exposure. It’s underrepresented in portfolios right now.”

On cash: “In the last two years, we’ve been as high as 60 per cent cash and we’ve been as low as 10 per cent cash. Right now, we’re 49 per cent cash And, you know, what’s paying 5 per cent is not a bad place. You want to be developing a watchlist of things you want to own, and you want to buy into them on weakness when they go down. I suspect the next 12 months we will probably be back down to 10 per cent, 15 per cent cash.”

On bonds: “There’s probably a buying opportunity right now in bonds, because, if the global economy is slow, that means bond prices will go up. So there’s a modest opportunity.”

On debt opportunities: “There’s private credit, there’s debt, there are private debt opportunities that our [UHNW clients] are searching out globally and getting some good risk-adjusted yields of 7 to 9 per cent. But you have to be selective.”

Nick Bakish, co-founder, principal of Group RMC, Montreal

“There’s just so much noise that you really have to wait and see. Prepare for the worst and hope for the best,” says Bakish, who has 80 per cent of his investment portfolio in commercial real estate.

His firm has had to pivot over the past few years, capitalizing on investment opportunities that have materialized post-pandemic.

“Everyone has a plan until they get punched in the face, and you just really can’t underwrite these things,” he says. “Nobody had plans for pandemics before COVID. Nobody had inflation forecasts going to 10 per cent. If the opportunity arises, be opportunistic.”

On inflation: “I think bad news could be good news. Because if growth was higher, it would be inflationary. You want to get to that Goldilocks scenario where there is still growth, but not inflationary. It’s not the worst thing to get inflation expectations down.”

On commercial real estate: “If you look at commercial real estate, it’s far more nuanced than ever, where what you are actually seeing is a flight to quality, where the top products are doing better than they ever did. Having said that, the middle lines of the debt market are essentially being frozen for lenders, and because of inflation, all the costs of tenant improvements, capital expenditures and commissions are going up. So that impacts the bottom line. But it’s created a lot of opportunities.”

On non-traditional lenders: “You’re seeing the emergence of non-traditional lenders because bank lenders are obviously quite worried given we had some bank failures like Silicon Valley Bank and First Republic. People are willing to work when it makes sense to work together.”

On capitalizing on crises: “There is a desperate need for capital for many companies. And if you can provide the capital, you can really manage the downside in interesting ways now – maybe not just always looking at the equity part of the capital table but going into other areas can be actually extremely interesting from a risk/reward perspective.

“For example, we started a ground lease business [an agreement in which a tenant can develop property during the lease period, after which it is turned over to the owner of the property]. Developers are unbelievably trapped with this increase of 500 basis points, and there’s a funding gap, and they do things that they would never have considered before.

“We just buy the land, then [developers] finish at a rate that’s far more palatable, say 5, 6 per cent versus like 20 per cent – but we own the land. And then there’s a royalty stream in perpetuity, and that’s the safest type of asset class. A crisis is a terrible thing to waste. So we’re taking full advantage.”

Leon Goren, Toronto chair of Tiger 21, and CEO of PEO Leadership, Toronto

“Life feels a little tougher today,” says Goren, who works with CEOs and C-suite executives around the world. He says many are more cautious in the current economic environment and are seeking ways to innovate while focusing on efficiency. Many of Goren’s clients are in the retail industry, facing challenges such as higher prices and reduced demand for their products and services.

On the retail industry: “[Retailers] have shrunk their inventory, they’re managing their inventory very tightly now. For them to get up and going again doesn’t happen – they’re ordering already for next year. So, you’re really looking 18 months out to two years before you see a bit of a shift here.”

On innovation: “I don’t think anybody can hold steady on anything these days; the world is changing so rapidly that the key to success is innovation. It’s using the technology to make yourself more efficient and cut costs and do things differently, trying to become more productive. [Clients] can’t take the gas off on those things or they’ll just get left behind.”

On consumer spending: “[Consumers] are careful with their money. They don’t want to lose it. You’ve got to get perspective. This has to be a bit painful [in order to] change the behaviors of individuals in terms of how they’re spending and the debt that they’re managing. I think we’re in that painful moment. How long does that last? Eighteen months to two years. And then it sort of flushes itself out a little bit.”

On productivity: “The leaders of these companies are not happy from a productivity perspective. When COVID hit in the first year, people were highly productive at home. The question is, are they as effective as they were two years ago? It’s pretty hard to maintain that stamina day in and day out. So, I would question the productivity on that side.”

On global instability: “One thing that I’ve learned is that the geopolitical situation influences the economics, versus economics influencing the geopolitical situation. It’s pretty unpredictable, in terms of what can happen. So that’s one thing we worry about.”

Goren says that despite the current economic challenges, there’s a sense among his clients that the challenges need to be weathered – and that the pain is ultimately short-term. “You’ve got to push through this – it’s just life,” he says. “Everything has its ups and its downs and it’s [about] resilience.”

Responses have been lightly edited for clarity and length.

Please visit here to see information about our standards of journalistic excellence.