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The new opportunities for Canadian investors

by Joe Rosengarten on 18 Sep 2017
The opening up of the private capital markets in January 2016 was a key moment for Canadian investors. Before then, private equity investments were only available to a select few high-net-worth and institutional investors. Now, with returns increasingly difficult to find in traditional markets and funds, more Canadian investors are reaping the benefits of private investment opportunities.

“Private markets have been the playground of institutions and the well-heeled investor – what we call the smart money – for many years,” says Clifford Fraser, Chief Operating Officer at Equiton. “A lot of institutional and high net worth investors have shifted their investments from 60/40 public markets and bonds, and are now adding private markets to their investment portfolios in order to achieve true diversification. Until recently, the average Canadian investor has not had that capability.”

Each provincial regulator has their own take on how to manage the private market and, as a result, investor qualification for private opportunities varies slightly. But, generally, an individual who makes more than $75,000 a year net income before taxes or, has household income of greater than $125,000 per year, or has net assets greater than $400,000 is eligible to invest, subject to suitability.

“The opening up of the private market was so significant for investors because it’s impossible to achieve diversification when 100% of a portfolio is in public investments,” Fraser says. “The private markets have different attributes and tend to be less volatile than the public market because they are not tied to the emotion of the marketplace.”

Generally, private investments tend to yield above average returns when compared to public markets. Investors do trade some liquidity for that, but with the typical investor aiming to maximize their retirement fund, that is not usually an issue. 

“Investors have been beaten up by the fees and lower-than-expected returns from mutual funds for too long,” Fraser says. “They now have options they didn’t have before. That’s important in the current investment landscape because the average Canadian investor is worried about their retirement. They know they are not getting the returns to sustain them later in life and are looking for options. Many don’t know they have somewhere else to put their money.” 

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