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FP Explains: How does Purpose Investments' new Longevity investment fund work and is it right for you? – Financial Post



The Longevity fund is unique, and so are you. It’s also getting a lot of media coverage and its launch is a good excuse to review your retirement income strategy. We run the numbers

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Many financial planners run financial plans based on the expectation of returning four or five per cent, but Purpose Investments’ new Longevity fund is designed to pay a 65-year-old a lifetime income of 6.15 per cent, based on the total amount invested with some inflation protection.


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Whether you are tempted to buy into this fund, it is a good time to think about the risks it is trying to mitigate. And a good excuse to review your own retirement income strategy. The thing to ask yourself is: What are the risks to my retirement income planning and do I have them covered?

The Longevity fund is trying to eliminate three retirement income risks: longevity risk, or the risk of outliving your money; inflation risk, or the cost of goods and services rising faster than your income; and sequence-of-return risk, which means that poor returns in early retirement force you to spend your capital faster.

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In general, sequence-of-return risk is not well understood or demonstrated in financial plans. The accompanying table does a good job illustrating the risk.


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The top row of the table shows what happens when you draw $7,000 annually from an initial investment of $100,000, earning seven per cent each year. The initial $100,000 remains intact. This is how most financial planning software illustrates retirement projections and is likely how most people think. The problem is that investments never earn the same return year after year.

The bottom row demonstrates sequence-of-return risk. Investment returns are poor in the early years and the $100,000 becomes $83,150 after 10 years of drawing $7,000 annually. Notice the average return is still seven per cent.

Now, before you jump into the Longevity fund, you’ll need to know that it doesn’t guarantee anything, but Purpose Investments have had the product actuarially tested and say there is a very good chance it will deliver as promised.


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What makes it so confident? It says it only needs to earn 3.5 per cent to pay investors 6.15 per cent because they are doing something called “risk pooling.” Think of risk pooling in this simplified way: Investors deposit their money into one pot and the investment growth of all investors goes into another pot.

For the first 15 years or so, your 6.15-per-cent withdrawals come from your capital pot. Once your capital has been depleted, your 6.15-per-cent withdrawals will come from the combined growth pot of all investors.

Do you see what is happening? Investors are sharing the retirement income risks with the other investors in the fund. If you die early, you will receive any capital that is left, but your investment growth stays in the growth pot to fund other investors’ retirement. Conversely, if you live a long life, investors who passed before you will be contributing to your retirement income.


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There is no doubt this fund will appeal to retirees who put safety first, but there is another group of retirees who are more investment or probability focused. They will likely want to know what rate of return they need to earn to match or beat the Longevity fund.

As an example, investing $500,000 in the Longevity fund at age 65 is expected to provide an annual income of $30,750 for life, with a possible income increase. The table below shows how long $500,000 will last earning various interest rates and drawing $30,750 annually.

The zero-per-cent return shows how long a 65-year-old can expect their capital to last. This is the point at which the Longevity fund relies on the growth pool to continue to make payments.

The bottom row of the table represents a retiree investing on their own, earning five per cent. The $500,000 should last to age 98, but will it? I used an average rate of return of five per cent and didn’t take into account sequence-of-return risk. If market returns are low in the first few years, the $500,000 will not last to age 98.


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I have also assumed a constant draw of $30,750, while the Longevity fund suggests it will be able to increase that amount over time.

In addition, if you invest on your own and markets are down, will you still confidently, without worry, continue to annually withdraw $30,750 from your investments? The retiree in the Longevity fund will.

Two things quickly come to mind when thinking of alternatives to the Longevity fund: life annuities and delaying Canada Pension Plan and/or Old Age Security to age 70.

A $500,000 life annuity will make guaranteed annual payments for life to a 65-year-old male and female of $28,919 and $26,650, respectively. Females receive a lower payout because they live longer, so the $500,000 has to last longer. Based on the annuity results, it may be that females will derive the greatest benefits from the Longevity fund.


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I haven’t compared delaying CPP and or OAS to the Longevity fund, since it is a highly individualized comparison, but you should do so if considering the fund.

Other planning-oriented questions you should ask yourself include:

Do you want to have your basic lifestyle needs secured for life? Does your CPP, OAS and possible pension do that? If not, maybe having some of the Longevity fund will fill the gap.

Are you 65 and have health issues? Maybe the Longevity fund is not for you.

Are you holding bonds or cash in your retirement portfolio? Does it make sense to replace some of your bonds with the Longevity fund?

Knowing you only have so much time on this planet, how do you want to spend your money? Do you want a steady income from now until death or do you want to spend more and do more while you are younger and healthier? If the latter, you may want to limit or avoid the Longevity fund.


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Although you can make additional withdrawals from the fund, it is not a good idea. Remember, you are leaving your returns in the fund. Plus, once you’ve drawn all of your capital, in about 15 or 16 years, you can’t draw more than what the fund distributes.

  1. Purpose Investments founder Som Seif.

    The FP’s Stephanie Hughes talks Longevity and innovation with Purpose founder Som Seif

  2. Split shares were created by taking a pool of dividend-paying stocks, and splitting out the dividends and growth into two different exchange vehicles: a preferred share and a Class A share.

    FP Explains: Everything you need to know about investing in split shares

  3. Robinhood is one online broker trying to gamify investing.

    A question for do-it-yourself investors: What’s your edge?

Do you want to leave money to your spouse or children? How will the Longevity fund affect your estate?

Are you hesitant to spend your retirement savings? The Longevity fund may psychologically give you more freedom to spend.

If your financial planner is projecting four-per-cent returns, have you restricted your lifestyle? Ask your planner if you should switch to the Longevity fund and draw a larger income to enjoy a bigger lifestyle. I am not suggesting there is anything wrong with using a four-per-cent return, but questioning your planner will lead to an interesting and informative discussion for both of you.


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There is a lot more to unpack with the Longevity fund and if it is something you’re interested in, Purpose Investments has a good question and answer page. Finally, the Longevity fund is unique and so are you. This is not a fund to blindly purchase. Make sure to put in the time to explore what it may or may not do for you.

Allan Norman, M.Sc., CFP, CIM, and Real Wealth Management specialist (RWM), is a fee-only certified financial planner with Atlantis Financial Inc. and a fully licensed investment advisor with Aligned Capital Partners Inc. He can be reached or

This commentary is provided as a general source of information and is intended for Canadian residents only.

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Surge Closes Investment into Contractor Connect – Business Wire



DALLAS–(BUSINESS WIRE)–Surge Private Equity LLC (“Surge”) announces investment into its 10th platform, Contractor Connect LLC (“CC” or “Company”), a B2B networking lead-generation platform within the home improvement and remodeling space. The transaction closed with debt financing provided by Modern Bank and Assurance Mezzanine Fund with BakerHostetler acting as lead counsel.

Since its founding in 2014, CC has connected hundreds of thousands of homeowners to local contractors through its proprietary lead aggregator, screening, and live-transfer platform. The Company primarily specializes in various home remodeling verticals including bathrooms, windows, roofs, gutters, and sidings. Its recognized brand is highly regarded across the 25+ states it currently serves. Founder Joseph Powless will remain on as both an owner and partner of the Company.

“COVID has accelerated work from home hybrid and full-time trends. People are now spending more time at home, increasing the demand for home improvement,” said Surge Founding Partner Thomas Beauchamp. “This sustained macro demand for the industry paired with our plan to launch into new verticals such as HVAC and solar give us a clear pathway to sustaining the historical 25% annual growth rate.”

About Surge Private Equity

Surge Private Equity is a Dallas-based private equity firm that seeks majority investments in growing businesses with $2-7.5MM of EBITDA. Together with its lending partners, Surge provides entrepreneurs with liquidity and investors with higher yields and greater accessibility through lower investment minimums. Surge primarily invests in companies where the seller will remain in an ongoing capacity.

About Modern Bank

Modern Bank, N.A. is a privately owned, entrepreneurial bank that provides flexible, competitive, and reliable senior debt financing solutions to commercial companies. Its experienced bankers specialize in working with lower middle-market companies and owners to provide low-cost cash flow-based financing solutions.

About Assurance Mezzanine Fund

Assurance Mezzanine Fund is a private investment firm providing $3 to $20 million customized growth capital solutions to profitable, lower-middle-market companies nationwide. We look to invest our funds in established companies operated by experienced and proven management teams with a history of building enterprise value.

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Have a large amount of cash to invest? Here's how deploying it all at once compares with doing so over time – CNBC



Valeriy_G | iStock | Getty Images

If you have a big wad of cash to invest, you may wonder whether you should put all of it to work immediately or spread out over time.

Regardless of what the markets are doing, you’re more likely to end up with a higher balance down the road by making a lump-sum investment instead of deploying the money at set intervals (known as dollar-cost averaging), a study from Northwestern Mutual Wealth Management shows.

That outperformance holds true regardless of the mix of stocks and bonds you invest in.

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“If you look at the probability that you’ll end up with a higher cumulative value, the study shows it’s overwhelmingly when you use a lump-sum investment [approach] versus dollar-cost averaging,” said Matt Stucky, senior portfolio manager of equities at Northwestern Mutual Wealth Management.

The study looked at rolling 10-year returns on $1 million starting in 1950, comparing results between an immediate lump-sum investment and dollar-cost averaging (which, in the study, assumes that $1 million is invested evenly over 12 months and then held for the remaining nine years).

Assuming a 100% stock portfolio, the return on lump-sum investing outperformed dollar-cost averaging 75% of the time, the study shows. For a portfolio composed of 60% stocks and 40% bonds, the outperformance rate was 80%. And a 100% fixed income portfolio outperformed dollar-cost averaging 90% of the time.

The average outperformance of lump-sum investing for the all-equity portfolio was 15.23%. For a 60-40 allocation, it was 10.68%, and for 100% fixed income, 4.3%.

Even when markets are hitting new highs, the data suggests that a better outcome down the road still means putting your money to work all at once, Stucky said. And, compared with investing the lump sum, choosing dollar-cost averaging instead can resemble market timing no matter how the markets are performing.

“There are a lot of other periods in history when the market has felt high,” Stucky said. “But market-timing is a very challenging strategy to implement successfully, whether by retail investors or professional investors.”

However, he said, dollar-cost averaging is not a bad strategy — generally speaking, 401(k) plan account holders are doing just that through their paycheck contributions throughout the year.

Additionally, before putting all your money in, say, stocks, all at once, you may want to be familiar with your risk tolerance. That’s basically a combination of how well you can sleep at night during periods of market volatility and how long until you need the money. Your portfolio construction — i.e., its mix of stocks and bonds — should reflect that risk tolerance, regardless of when you put your money to work.

“From our perspective, we’re looking at 10-year time horizons in the study … and market volatility during that time is going to be a constant, especially with a 100% equity portfolio,” Stucky said. “It’s better if we have expectations going into a strategy than afterwards discover our risk tolerance is very different.”

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New rules for investing in China: Lessons from Beijing’s education crackdown – CNBC



Chinese ride-hailing company Didi offers cars for guests of the Annual Meeting of the New Champions 2017 (World Economic Forum’s Summer Davos session) on June 27, 2017, in Dalian, Liaoning Province of China.
VCG | Visual China Group | Getty Images

BEIJING — As overseas investors reel from Beijing’s regulatory crackdown, the rapid fallout in an industry like after-school tutoring can be a guide to what went wrong, and where future opportunities lie in China.

Before China cracked down on tutoring schools this summer, major investment firms like SoftBank were pouring billions of dollars into Chinese education companies, many of which were publicly traded in the U.S. or on their way to listing there.

The strategy was one of burning cash to fund exponential user growth, with hopes of profit in the future. For the strategy to work, investors aimed for a “winner takes all” approach that they’d used with other Chinese start-ups such as coffee chain Luckin Coffee and ride-hailing company Didi.

Didi essentially paid Chinese consumers to take cheap rides through its app, beating out Uber to dominate about 90% of the mainland market, and went on to raise more than $4 billion in a New York IPO on June 30.

But it soon became clear that investment strategy might no longer work. Just days after Didi’s IPO, Chinese authorities ordered app stores to remove Didi’s app and began investigations into data security — effectively shutting down the business’s growth prospects in the near term.

It came months after Beijing’s efforts to tackle alleged monopolistic practices by the country’s internet technology giants like Alibaba and Tencent.

By late July, the education sector was clearly Beijing’s next target.

Crackdown on after-school tutoring

In harsher-than-expected measures, regulators ordered tutoring companies in kindergarten to 12th grade academic subjects to restructure as non-profits, cut operating hours and remove foreign investment. Shares of industry leaders such as Tal EducationNew Oriental Education & Technology Group and Gaotu Techedu plunged on that news. They have lost more than 75% each over the last three months.

Chinese tutoring start-ups that investment funds had placed their bets on months before suddenly lost their path to a public listing.

In October 2020, online tutoring start-up Yuanfudao said it raised a total of $2.2 billion from Tencent, Hillhouse Capital, Temasek and many other investors — for a valuation of $15.5 billion.

Two months later, competitor Zuoyebang raised $1.6 billion from investors including SoftBank’s Vision Fund 1, Sequoia China, Tiger Global and Alibaba.

“They were hoping to create another oligopoly like Didi” with market pricing power, said an investor and co-founder of one of the largest U.S.-listed Chinese education companies, according to a CNBC translation of his Mandarin-language interview. He requested anonymity because of the sensitivity of the matter.

However, the education industry already had several major market players, he pointed out, and “it turned out that no business could really beat the other before the crackdown.”

Building a dominant market leader in after-school tutoring was a lucrative prospect. The opportunity was enormous given China’s population of 1.4 billion people and a culture in which parents prize their children’s education.

Early industry players like New Oriental got their start with physically leased locations and in-person classrooms. But the coronavirus pandemic in 2020 accelerated the tutoring industry’s shift online, and the cash-burning fights of China’s internet world was in full play.

Advertising wars

Chinese after-school tutoring companies began to spend heavily last year on advertising to attract new students.

U.S.-listed Gaotu spent more than 50 million yuan ($7.75 million) in one week this past winter for ads on short-video platform Kuaishou, a person familiar with the matter told CNBC.

“In China, Kuaishou is a smaller platform than [ByteDance’s] Douyin/TikTok, so the total spend on traffic by all of K to 12 education companies would be much more than that,” the source said in Mandarin, according to a CNBC translation.

Gaotu did not respond to a request for comment. In its earnings report for the first three months of the year, the company said its selling and marketing expenses of 2.29 billion yuan were three times more than a year ago.

Tal Education disclosed that its spending in the same category surged by 172% from a year ago to 660.5 million yuan for the three months that ended Feb. 28.

Both companies reported a net loss in the quarter, as did another industry player, OneSmart International Education Group, which disclosed a 47% year-on-year surge in selling and marketing expenses to 288.8 million yuan.

OneSmart listed in the U.S. in 2018 in an IPO underwritten by Morgan Stanley, Deutsche Bank and UBS. Later that year, the education company acquired Juren, one of the oldest businesses in China’s tutoring industry.

But the new after-school regulations struck a fatal blow to the 27-year-old company. About a month after the new rules were released, Juren collapsed, just one day before public schools opened on Sept. 1.

OneSmart could be delisted from the New York Stock Exchange since its shares have remained below $1 since July.

Other U.S.-listed Chinese stocks are also struggling. New Oriental did not report a net loss for the quarter ended Feb. 28, but disclosed it spent $156.1 million on selling and marketing in that time, 32% more than a year ago.

The surge in advertising spend to grow student enrollment came as investors piled into the industry, and increased competition sent customer acquisition costs soaring.

The landscape has significantly changed.
Ming Liao
founding partner, Prospect Avenue Capital

With new capital, start-ups Zuoyebang and Yuanfudao, along with Tal Education, reportedly went on to sponsor state broadcaster CCTV’s annual Spring Festival Gala in February. That’s the market equivalent in China of buying a U.S. Super Bowl ad, which costs of about $5.5 million for a 30 second spot.

But regulators were watching. In the months before the harsh crackdown, Chinese authorities fined 15 education companies a total of 36.5 million yuan, primarily for false advertising.

Then in July, harsher regulations on after-school tutoring essentially banned advertising, prohibited public offerings of shares, and investment from foreign capital.

‘Common prosperity’ in China

The new policy marks Beijing’s latest effort to restrict the education industry’s sprawling growth and its burden on parents — a concern for authorities trying to boost births in the face of a rapidly aging population and shrinking workforce.

Investors need to recognize that tackling the population problem, slowing economic growth and tensions with the U.S., have become top concerns for the Chinese government, said Ming Liao, founding partner of Beijing-based Prospect Avenue Capital, which manages $500 million in assets.

“The landscape has significantly changed,” he said, noting that investors now need to consider national policies far more than just industry developments.

In addition to the crackdown on internet companies and after-school tutoring centers, authorities have  ordered online video game companies to restrict children to playing three hours a week.

Speeches by President Xi Jinping have emphasized the goal is “common prosperity,” or moderate wealth for all, rather than some.

Education is just one of the so-called three mountains that Chinese authorities are tackling. The other two are real estate and health care, all areas in which hundreds of millions of people in the country have complained of excessively high costs.

In the last 20 years, corporate profits have largely gone to property developers and companies based on internet platforms, Liao said.

In light of new policy priorities, he said, it’s important for investors to distinguish between internet-based businesses and those developing more tangible kinds of technology like hardware — even if both kinds of companies are loosely referred to as “tech” businesses in English.

With the U.S. now under President Joe Biden and bent on competing with China, Beijing is increasing investing in an ambitious multi-year plan to build up its domestic technology ranging from semiconductors to quantum computing.

The “China market can still offer attractive investment returns for global investors, and the challenge lies in identifying the potential future winners amid China’s rebalancing,” Bank of America Securities analysts wrote in a Sept. 10 report.

They pointed to a shift over the last two decades in the largest Chinese companies by market capitalization — from telecommunications, to banks, to internet stocks. Going forward, they expect greater regulation on internet and property industries, “while advanced manufacturing, technology, and green energy related sectors will be promoted.”

The bank listed a few contenders for “future winners.”

  • Sportswear: Anta
  • Health care: Wuxi Bio
  • Electric vehicles and and EV battery: BYD
  • Lithium in new materials: Ganfeng
  • Renewable energy: Long Yuan
  • Tech hardware: Flat Glass

“Certain industrials sectors that we currently do not cover could also have promising opportunities,” the analysts said.

Future of investing in China

For Chinese after-school tutoring companies that once attracted billions of dollars, they’re now trying to survive by building up courses in non-academic areas like art or adult education. Those in the industry say it’s an uncertain path that has a market only a fraction of what the companies used to operate in.

SoftBank is waiting for clarity on the regulatory front before resuming “active investment in China,” its Chief Executive Masayoshi Son said in an earnings call on Aug. 10.

“We don’t have any doubt about future potential of China … In one year or two years under the new rules and under the new orders, I think things will be much clearer,” Son said, according to a FactSet transcript.

When contacted by CNBC last week about its investment plans for China, Softbank pointed to how it led investment rounds in the last few weeks in Agile Robots, a Chinese-German industrial robotics company, and Ekuaibao, a Beijing-based enterprise reimbursement software company.

“Our commitment to China is unchanged. We continue to invest in this dynamic market and help entrepreneurs drive a wave of innovation,” SoftBank said in a statement.

But when it comes to bets on the education industry, some investors have decided to look elsewhere in Asia.

In June, Bangalore-based online education company Byju became the most valuable start-up in India after raising $350 million from UBS, Zoom founder Eric Yuan, Blackstone and others. Byju is valued at $16.5 billion, according to CB Insights.

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