Advertisement 1

Veteran investor Michael Lee-Chin on what he is looking for in 2022

The billionaire and founder of investment firm Portland Holdings also shares his thoughts on Bitcoin, public markets and niche health-care investing

Article content

Jamaican-Canadian billionaire, businessman and philanthropist Michael Lee-Chin, the founder and chairman of privately-held investment firm Portland Holdings in Burlington, Ont., sat down with the Financial Post to discuss his outlook for 2022, and some thoughts on his investing strategies.

Advertisement 2
Story continues below
Article content

What are some key issues to look out for in 2022?

“Generally speaking, the market is overvalued. We have been cautious for the past year, so we have lots of cash awaiting a better point of entry. Hopefully, the market will retract to levels that are more sensible. Right now, it’s insane.”

Article content

Do you have any thoughts about the public versus the private markets?

“We have to look at our framework to get context, with the role for investing being really wealthy people and successful institutions. Wealthy people, invariably, became wealthy by being a specialist in one area. They own a business. Most wealthy people did not become wealthy by owning a diversified portfolio of stocks.

“Let us go to a paradigm that makes sense, which is a paradigm that is used by the large pensions. When they invest, they say, ‘Okay, what are our needs? No. 1, we have a need to pay pensioners so we need to make sure we have income. However we invest, we have to make sure that we do it in a way that we don’t lose our principal. The second need is that we have to make sure that we have some liquidity – some, not too much; too much is costly. The third thing we need is to get growth to pay future income. The fourth thing they need is income to pay the pensioners. Those are their needs.

“Let us see how they satisfy those needs. Firstly, in terms of protection of capital, they invest in high-quality assets, and they diversify between public and private. Then, if we zoom in, let’s see how they satisfy each of their needs. For liquidity, they invest in a basket of publicly traded shares – stocks – for liquidity, and cash, or near-cash instruments. They see the public markets as providing liquidity and that’s it. For growth they look to direct ownership of private businesses, they look to venture capital, they look to private equity funds, they look to real estate, and they look to infrastructure. That’s how they get growth – private. For income, they would have sources that they would get their income from, including income-type real estate – private debt.

Article content
Advertisement 3
Story continues below
Article content

“We as individuals need to calculate carefully how much liquidity we need for the next several years. It’s liquidity management. The rest should be invested in growth. You get growth through private venture capital, private equity funds, direct ownership of private businesses, private infrastructure, and private real estate.”

Recommended from Editorial
  1. An investor that relied exclusively on the Canadian stock market over the past 10 years would have experienced an average annualized 8.8 per cent return, when using the S&P/TSX Capped Composite as an indicator of performance, says CIBC’s David Wong.
    Where to invest in 2022: experts weigh in
  2. Despite confidence in central banks’ ability to manage inflation over the short to medium term, inflation protection is top of mind for asset managers.
    High-net-worth investors’ outlook on inflation for 2022

You have said it is preferable to invest in owner-operated businesses because they have skin in the game.

“I absolutely believe that when you’re investing you should look for businesses that are run by owner-operators because they have skin in the game. They’re owners, vs run by agents. We have to make that distinction. Agents can leave and get another job. Owners can’t; they have to make it work.”

What should investors look for when considering businesses to invest in?

“They have to look for businesses with the following characteristics: businesses that are run by owner-operators, businesses where you can associate the business with a person – When you think of Apple, you think of [Steve] Jobs. I want to see who is responsible. Secondly, we should look for businesses where management is not a democracy. The management could be described as autocratic. Better decisions are made – with input, obviously – where someone is responsible. Thirdly, the owner should have a lot of his or her wealth tied up in that business. Those are some of the management characteristics I would look for in businesses, whether private or public.”

Advertisement 4
Story continues below
Article content

There is a lot of interest in technology-driven investing opportunities, such as blockchain-based products and services. How much is hype?

“We have a philosophy pertaining to technology and investing. If we go back to what is investing – investing is owning something; owning something that you can point to. I own this plot of land. I can see it, I can touch it, I can feel it, I can know where the income is coming from. What do you own when you buy Bitcoin? Can you point to anything? That’s not investing.

You have said you are interested in the healthcare sector for demographic reasons (aging boomers) and your company is entering a strategic initiative in healthcare innovation. What specifically are you interested in in this sector?

“We are driven by our principles, which we established initially. When it comes to investing, the five laws of wealth creation is what drives us as investors: No. 1, we invest in high-quality businesses. No. 2, we have to understand them. No. 3, they must be in strong, long-term growth industries. No. 4, they must use other people’s money prudently, and, lastly, we are long-term investors so our whole period is for as long as the business and industry remain great. With that as background, I try to look very long-term, and I have to get the industry right.

“In this case, being a baby boomer is very instructive, and can help us to get long-term trends right. Back in 1983, when I was 32 years old, I asked the question, ‘What is going to happen in the next 10 years?’ So, I looked out and thought, ‘In 10 years from now, I’ll be 42. What do 42-year-old people think about? Saving and retiring.’ I asked myself, ‘What is the vehicle I’m going to invest in now to participate in that coming boom?’ That boom, in ’83, as measured by assets under management in the mutual fund industry specifically, we had total assets under management of $5 billion. Today, 38 years later, assets under management is $1.6 trillion. The industry has multiplied 300 times. We have seen that wave play out.

Advertisement 5
Story continues below
Article content

“Today I’m 70. So, I ask myself, what gives angst to 70-year-old people? Well, I want to live long and I want to have a high-quality life. Healthcare is in the early innings of a boom. In ’83 I didn’t invest in financial services in general. I was very specific. I invested in the asset management subsector of financial services. I didn’t invest generally in banks or insurance companies. That was the bullseye.

“Within healthcare, is there a bullseye? Yes, because as we age, the likelihood of cancer is increasing, so there is a boom within a boom – oncology. In addition, the traditional modalities to treat cancer – external beam radiation, which basically fries your body, and chemotherapy, which basically poisons your body – are both blind. You can’t see the cancer, and they’re both based on statistics. The two modalities have been around for 80 years; they’re rife for disruption. What is going to disrupt chemotherapy and external beam radiation? It’s called PRRT – Peptide Receptor Radionuclide Therapy, which is able to see the cancer accurately and then treat it at the cellular level. That’s my main focus. Just as I did not invest generally in the banks or insurance companies, I was precise. I want to be the expert in this area.

“Once you become an expert in one area, you can see what is upstream – the inputs from that area and the outputs. All you have to do is get one thing right, and you create a lot of wealth.”

Responses have been edited for clarity and length.

Get the latest stories from Canadian Family Offices in our weekly newsletter. Sign up here. 

Article content