Why Canadian asset managers are teaming with private market giants to launch new funds

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There’s a certain irony that Marc-André Lewis points to when discussing the behaviour of the largest capital allocators in this country compared with individual investors regarding private markets.
For years, big pension plans such as the Canada Pension Plan Investment Board and the Ontario Teachers’ Pension Plan have put cash to work in non-public assets ranging from infrastructure to private equity and credit, generating enviable returns.
The opposite is true for individual investors, says Mr. Lewis, chief investment officer and co-head of CI Global Asset Management, who previously worked at the Abu Dhabi Investment Authority and the Caisse de dépôt et placement du Québec.
It’s a situation several Canadian fund managers, including CI GAM, are now seizing upon, spurred by an easing of regulatory constraints and increased interest from investors seeking alternative investments uncorrelated to public markets after the tumult of 2022, when stocks and bonds both tumbled significantly.
Specifically, several new private funds aimed at retail investors have launched in the past 18 months.
“An erratic recovery, impending changes to interest rates and geopolitical tensions may prove to be a strong catalyst behind the growth of alternatives in the coming years,” states a recent report from Toronto-based research firm Investor Economics, an ISS Market Intelligence business, which surveyed a dozen domestic asset managers.
Many new offerings are backed by partnerships between domestic managers – such as CI GAM, Purpose Investments Inc., BMO GAM and CIBC Asset Management Inc. – and the world’s largest and most experienced private-market operators who see an opportunity to broaden out from institutional clients to a wider investor base. Canadian asset managers are creating retail versions of institutional strategies through such partnerships.
The report points to BMO GAM’s launch of BMO Partners Group Private Markets Fund and CIBC AM’s plans for a private vehicle with KKR Inc. Others include CI GAM’s CI Adams Street Global Private Markets Fund and Purpose Investment’s Purpose Apollo Private Credit Fund.
There’s just less than $90-billion invested in offering memorandum (OM) assets in Canada across the full-service brokerage and private investment counsel channels, the Investor Economics report states. Although that figure is poised to grow, there are still hurdles to clear, such as concerns over access to invested capital, valuation transparency and the potential for fraud.
“Liquidity issues experienced by several products over the past few years are present in advisors’ and investors’ minds,” the report says.
Asset managers are finding it difficult to get OM products approved at investment dealers due to the “reputational risk,” it adds, and those concerns have led dealers to favour in-house funds and large asset managers with strong brand names.
Many new private market products mimic certain characteristics of a standard mutual fund in that they’re open-ended or “evergreen.” That means they’re structured to provide enough liquidity to allow investors to redeem up to a certain percentage on a monthly or quarterly basis, instead of locking up their capital for years, as with closed-end offerings. Many new funds also enable investors to put their capital to work right away and have lower minimum investment thresholds – typically beginning at $25,000 – than traditional closed-end funds.
Vlad Tasevski, chief operating officer and head of product for Purpose Investments, says client trust in private market funds will grow as the funds’ track records are established.
Purpose Investments has partnered with private capital giant Apollo Asset Management Inc. on a credit fund as well as Pantheon Ventures on a private equity offering, hoping those big names will provide assurances to investors that their capital is invested securely in top-tier opportunities.
“Being able to offer our private market funds with established operators in a format advisors can use with their firm’s framework from a [know-your-product and know-your-client] perspective is very important for us,” Mr. Tasevski says.
“These are unique assets versus public equities. Given the nature of the investment, it’s very important to partner up with firms that are very experienced, with a strong track record and have done this for a long, long time.”
Asset managers point to superior, risk-adjusted returns for private markets compared with public markets as a primary reason for undertaking the complex task of building the new funds, many of which target low double-digit yields.
Private market assets have grown rapidly in recent years, totalling more than US$13.1-trillion globally through mid-2023, a figure that has risen by almost 20 per cent annually since 2018, according to McKinsey & Co.
“It’s a trend I wouldn’t be surprised if we see continuing,” says Colin Lynch, managing director and head of alternative investments at TD Asset Management Inc. “Partially because we’ve seen this for individual investors elsewhere at scale for some time, and because you have a growing pool of investible opportunities.”
But access, appetite and a limited understanding of alternative assets have contributed to an underrepresentation of private market allocations in portfolios, Mr. Lewis says.
“Canadian institutions have been at the forefront of privates, while individual investors’ direct exposure is close to zero,” he says.
By contrast, in CI GAM’s U.S. business, Corient Private Wealth, many clients hold private market exposure of 10 to 15 per cent, Mr. Lewis says. “These are investors who have been involved in private markets for a long time.”
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