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What you need to know about investing beyond the limits of public markets – Financial Post

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Having access to private capital enables investors to construct portfolios capable of transcending the limitations of stocks and bonds

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Investors nowadays may be looking for opportunities outside of what was once generally considered a standard investment portfolio of 60-per-cent equities and 40-per-cent bonds, since this type of asset allocation is anchored to the volatility of the public markets.

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It’s no coincidence they’re looking elsewhere now. The current environment features low interest rates and high equity market valuations. The solution lies on the other side of the public market. Enter, private capital.

Much like the far side of a distant mountain range, the lesser-known realm of private capital can be daunting or simply inaccessible, since it presents a significant barrier to entry for a typical investor. But this reserved asset class can be extraordinarily lucrative for those with a sense of adventure and know what they’re doing, or at least have a trusted and qualified guide.

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The term private capital, simply put, describes assets that are not accessible for purchase on publicly traded markets. These assets are not frequently priced as assets on a public exchange are, and, generally, they also have liquidity restrictions, require notice to redeem and a minimum investment time commitment.

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These constraints can help manage investor behaviour, because private assets are not as easily traded as a stock held in a direct trading investment account, and, therefore, irrational decisions can be avoided. Historically, private capital was for institutional investors and high-net-worth individuals, because high minimum investments were required to access. This has changed.

Some segments of private capital may include:

Mortgages : Private mortgage funds can provide capital preservation and a stable, high level of interest income. The loans may be secured first and second mortgages on income-producing properties. Public market comparable: mortgage investment corporations (MICs)

Private debt : These investments are made by providing debt financing to corporate entities through private transactions. Private debt opportunities are most often illiquid investments that generally need to be held until maturity. Investments seek a high cash flow (yield) compared to traditional fixed-income assets. Public market comparable: high-yield fixed-income products

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Hard real estate assets : Such real estate is often income producing and spread among different geographic locations and property types (for example, multi-family, industrial, storage, office, senior living and retail properties.) Public market comparable: real estate investment trusts (REITs).

Infrastructure and renewable resources : Investments made in infrastructure and other real assets include highways, water plants, communication, airports, wind and solar farms, farmland and timber. Public market comparable: publicly traded infrastructure firm securities.

Private equity : Investments made in later-stage private companies (companies not listed on a public stock exchange). Public market comparable: publicly listed small-cap stocks .

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Venture capital : Similar to private equity, but investments are made in early-stage private companies. Public market comparable: publicly listed small-cap growth stocks

There are some key advantages to having private assets in your portfolio. The first is diversification. Private assets offer exposure to corners of the economy that public investments don’t. In the past two decades, the number of public companies has declined and the number of privately held companies has increased.

“Investors may need access to these markets in order to achieve broader diversification into great companies,” said Bijal Patel, an industry veteran and chief financial officer at Nicola Wealth.

He goes on to explain that another advantage is lower volatility in performance returns.

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“Private companies’ valuations are much more a reflection of their actual earnings versus extraneous factors which often influence public market valuations,” he said. “For this reason, they experience lower volatility in pricing.”

Patel also highlights that “by partnering with great sponsors who take activist roles in helping companies to achieve long-term growth versus chasing quarterly earnings, investors may get the opportunity for enhanced returns.”

Finally, in the current low-interest-rate environment, investors are finding typical fixed-income investments less attractive. Private fixed-income assets may provide an opportunity for good cash flow and target attractive yields and returns compared to public-market fixed-income assets.

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Sounds great, so what keeps most investors from venturing into this market?

To start with, most private assets have high minimum investment thresholds. Many private funds require investors’ money to be committed for a set period of time, usually more than five years, giving the general partner time to invest, manage and finally divest the fund. There are often significant penalties should you need to sell sooner.

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Furthermore, the management fees can be onerous. Investors generally have to pay for access to this world, because private markets demand specialized expertise from fund managers and deals largely come about on the basis of relationships.

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I always aim to allow my clients access to the advantages of private investing while minimizing the disadvantages by using pooled funds and limited partnerships focused on infrastructure and renewable resources, private real estate holdings, private equity, venture capital, private debt and mortgages.

As an investor, you may want to work with an investment manager (your guide) who can invest on favourable terms with specialized general partners, participate directly in financings through co-investments, and maintain an evergreen fund structure that gives investors the ability to put funds in — and, if necessary, take them out — at times of their choosing.

Keep in mind that many private asset funds take years to deploy the capital that they raise, so choose one that does not implement minimums and can invest your money right away.

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Having access to private capital enables investors to construct portfolios capable of transcending the limitations of stocks and bonds. Like a brave pioneer, you can’t discover all the opportunities available without exploring the offerings along the road less travelled.

Jennifer Leathem, CFP, CIM, is a financial adviser at Nicola Wealth. This article should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.

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Peel Hunt Reports Record First-Half Investment Banking Revenue – BNN

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(Bloomberg) — Peel Hunt’s investment banking unit reported record results in the six months to Sept. 28 as the exit from lockdown boosted market confidence and the broker grew its client roster.

Revenue at the division rose 43% to 32.7 million pounds ($44 million), with investment banking fees up almost half, the company said in a statement Wednesday. That’s its strongest half-year on record.

“We continue to grow our number of retained investment banking clients and have a healthy deal pipeline with a strong balance of transactions,” Chief Executive Officer Steven Fine said in the statement. “We’re well positioned to execute our growth plans, which include opening an European office.”

The firm’s research operations grew by 3.5% and revenue at its execution and trading operations more than halved to 24 million pounds, reflecting an expected normalization from the heightened trading volumes seen at the onset of the pandemic.

The firm returned to London’s Alternative Investment Market at the end of September, more than two decades after it was first floated. It currently has 162 corporate clients, with an average market value of around 775 million pounds.

©2021 Bloomberg L.P.

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Here’s why you shouldn’t shy away from investing, even if you only have a small amount of money – CNBC

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Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.

Robert G. Allen, author of several best-selling personal finance books once asked, “How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” 

Using a savings account and an emergency fund for short-term expenses is important, but investing for retirement and the future is arguably just as crucial. While it may feel pointless to start investing if you don’t have much money, it can still be incredibly worthwhile. Think of it this way: few, if any, start investing with a large sum of money. For many, growing your wealth happens over years and years and is a slow and steady process.

By starting slow, even with a small amount of cash, you can begin to establish the habit of investing regularly, which will hopefully lead to a large nest egg in the future.

Select details why you should start investing today, even if you don’t have a large amount of money to start with.

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Why you should start investing today

Investing can be an intimidating word and concept for many reasons. There are a large amount of terms, tax implications, planning and investments to understand — along with knowing there will be market fluctuations making your net worth go up and down. But by understanding the mere basics, you can begin to grow your wealth quickly.

Corbin Blackwell CFP, senior financial planner at wealth management app Betterment, told Select that, “Investing is one of the best ways to grow your long-term wealth and reach major goals for things like retirement, buying a home and college funds.”

He also said that beginning the investing journey is often the most difficult part, as growth will be limited at first. He added that, “Tools available today, like digital investment advisors, make it easier than ever to get started.”

And by getting started today, you have the best asset that any investor can have on their side: time.

By letting your money sit in the market longer, you allow for compound interest to take over — which is when your interest and gains stack on top of one another. Blackwell gives an excellent example of the power of compound interest:

“Let’s say you invested just $100 today and saw a 5% annual return – thanks to the power of compound interest, if you don’t touch your investment, in 30 years you’d have $430.”

That’s an ok return, but imagine if you invested $100 monthly for 30 years into a common index fund. An index fund is a fund that has a group of companies within it, and tracks the performance of the entire group. These groups can range in focus including the size of each company, the respective industries, location of the companies, type of investment and more. One of the most popular indices, the S&P 500, consists of the 500 largest companies in the United States, making it a relatively safe investment because of its exposure to hundreds of companies and dozens of industries.

Many consider this a ‘boring investment,’ but the results the index has produced are nothing to balk at.

The average yearly return of the S&P 500 over the last 30 years is 10.7%, but even at a conservative return of 8%, you would have over $146,000 if you invest $100 a month for 30 years. The impressive part is that your total contributions would be $36,000, which means your money would have quadrupled in value in 30 years (note that past performance does not guarantee future success).

In short, the more money and more time you have in the market, the more likely you are to grow your investment funds.

How to begin investing

If growing your net worth is your goal, you can get started in just a few minutes. Here are a few things to consider:

Build a budget that works for you

Starting to invest with a small amount of money isn’t an issue. However, it’s important to know how much you can afford to invest, as you don’t want to harm your personal finances in the process. Blackwell urged, “as long as you aren’t using money [to invest] that you need to cover day to day expenses such as food, rent and high interest debt payments, I recommend you start investing.”

A budget gives you a way to see where your money is going each month, where you can possibly cut back and how much you can invest each month. You can set up a budget for yourself using a budgeting app, a spreadsheet or even a simple pen and paper. I use Personal Capital to manage my budget because I’m able to track my expenses and monitor the performance of my investments in one convenient app.

Regardless of which budgeting method works best for you, it’s important to have an established budget to understand how much you can invest each month without cutting into the money allocated towards your monthly essentials.

Select an investing “bucket” and investments

There are many different buckets you can fill with money, such as a Roth IRA, HSA, 529 or taxable brokerage account. Each of these accounts serve a different purpose and have different tax implications, so be sure to select one that makes sense for you. For example, a Roth IRA is great if you plan on being in a higher tax bracket when you retire — you’ll contribute after-tax income but all gains are tax-free after 59 and a half years old.

Once you select the type of account you want to invest within, you then must decide what type of investment to put your money into. This is the puzzling part for many, as there are an abundance of options, from ETFs to viral meme stocks to index funds and many more in-between.

For long term investors, index funds are a great solution as they have low fees, are low maintenance, provide wide exposure and many provide stable returns. In fact, John Bogle, the founder of Vanguard, summarizes the effectiveness of index funds in one analogy: “Don’t look for the needle in the haystack. Just buy the haystack.”

Regardless of which investment you choose, it’s important to evaluate your risk-tolerance and understand what you’re investing in. Be sure to do your own research, and potentially connect with an accredited financial advisor to discuss the best options.

Automate your investing

Once you determine how much you can and want to invest each month, it’s important to turn on auto-investing.

This is where money is taken out of your checking account each month and automatically deposited into your choice of investments. Choosing this option is important because it takes the leg work away from needing to invest each month. Additionally, studies show that we are built for ‘present bias‘ — which is the idea that the farther away something is, the less important it is. Essentially, it’s much easier to spend now, rather than save for later. Automating transfers from your checking account or paycheck into an investment account will help ensure you don’t spend money that you were planning on investing.

By automating your investments, you will be passively growing your nest egg and getting yourself closer to reaching your financial goals.

You may also want to consider a robo-advisor like Betterment or Wealthfront. Robo-advisors work by gathering information from you on your financial situation and investing goals to suggest investments that fit your needs and risk tolerance. After supplying this information, the robo-advisor will build you a portfolio based on your answers through computer algorithms and advanced software, with little to no work on your end. Plus, it will rebalance your investments over time based on your goals and changes in the market.

Best brokerages to get started

To begin investing, you’ll need to select a brokerage account provider. These brokerages serve as the intermediary between you and the seller of the stock or security you want to purchase.

When deciding on the best brokerage for you, be sure to consider these factors:

  • Fees: These can range from minimum deposits, stock trade fees, mutual fund trade fees and more. Be sure to select a no- or low-fee brokerage.
  • Ease of use: Each brokerage has a different website and mobile app. While this is much more subjective, it’s advantageous to use a brokerage with a web interface and experience you understand and enjoy.
  • Promotions: From time to time, brokerages will offer bonuses to new users. For example, I recently signed up for a Fidelity brokerage account and earned a $100 bonus after depositing $50.

Below are a few of our favorite online brokerages:

Fidelity

Information about Fidelity accounts has been collected independently by Select and has not been reviewed or provided by the issuer prior to publication.

  • Fees/commissions

    $0 for stocks, ETFs, options and some mutual funds

  • Account minimum

  • Investment options

    Stocks, bonds, fractional shares, ETFs, mutual funds, options

Pros

  • Some ETFs don’t have expense ratios
  • Mobile app is easy to use
  • No commissions on many types of securities

Cons

  • No futures or forex trading
  • High fees for broker assisted trades

TD Ameritrade

  • Fees/commissions

    $0 commission on stocks, options and ETFs

  • Account minimum

  • Investment options

    Includes stocks, bonds, mutual funds, ETFs, options, Forex, and futures

Pros

  • Excellent customer service
  • Intuitive trading platform
  • Large selection of mutual funds

Cons

  • Some mutual funds charge high commissions
  • Free research may not all be relevant to novice investors
  • Doesn’t offer fractional shares of stocks

Vanguard

Information about the Vanguard accounts has been collected independently by Select and has not been reviewed or provided by the issuer prior to publication.

  • Fees/commissions

  • Account minimum

  • Investment options

    Stocks, bonds, ETFs, mutual funds, options, CDs

Pros

  • Excellent customer service
  • One of the largest ETF and mutual funds offerings around
  • Large number of no-transaction-fee mutual funds

Cons

  • $20 annual fee for IRAs and brokerage accounts, though investors can waive this fee by opting into paperless statements
  • Basic trading platform only
  • No robust research and data tools

Bottom line

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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Increased scrutiny will make greenwashing tougher – Investment Executive

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The global conversation around climate and social issues will make engaging in greenwashing more difficult, says Jacob Hegge, an investment specialist with J.P. Morgan Asset Management.

Hegge said the growing popularity of bonds that focus on environment, social and governance (ESG) excellence is helping to identify bad-faith players who try to appear more conscientious than they are.

He allowed that investing in green initiatives can be confusing, given unclear and sometimes conflicting definitions, but standardization is coming.

“It’s great to see all the activity around ESG, but a consequence of this increased activity means a greater dispersion in terminology,” he said. “As ESG investing continues to grow, we’d expect to see more standardization. But until then, it’s important to understand that navigating the landscape can be difficult.”

Hegge said investors should test the terminology used to define green projects.

“Is the data or testing methodology readily available for investors to use? Is it easy to understand? Are the definitions explained and easily accessible? These are things investors need to be looking out for,” he said. “It comes down to transparency and consistency. And as ESG investing continues to grow globally, we expect this standardization to be more prominent in the market.”

The hot ESG market makes it all the more necessary for investors to know what they’re buying, Hegge said. “We do think it’s important for investors to look under the hood and pay attention to what investment firms are saying when they title a fund as being ESG. They really need to make sure that investment products are staying true to the prospectus.”

Hegge said green and sustainability-linked bonds are being issued at record levels, and issues are likely to increase.

“This year alone, green social sustainability and sustainability-linked bonds are expected to reach a combined issuance of over a trillion [U.S. dollars], which is doubled compared to last year,” he said. “And … some expect that investment in green bonds will actually double and reach US$1 trillion for the first time in a single year by the end of next year.”

Hegge said many companies are at the beginning of their green journeys, and their success in meeting ambitious targets will reflect their commitment level.

“Don’t narrow your opportunity set by being put off by low ESG scores. The important part is whether these scores are improving over time. You can find sustainable bonds even if they don’t have a sustainable label in the market,” he said.

“The global fixed-income market is very large and there are a lot of opportunities out there.”

**

This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.

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