Are you considering equity financing?

investing equity ownership

It’s one thing to believe in private investing and tout it as a viable and profitable investment alternative. It’s another thing to engage in specific practices that allow for its successful implementation. In order to do private investing well, there are certain things you need to do well, and that certainly rings true in the area of equity financing.

Of course, equity financing involves investors essentially taking equity/ownership of a venture or company in exchange for investment dollars. As with most investment transactions, both sides of the equation can benefit from equity financing.

The advantages of ownership

On the one hand, companies and ventures are not required to give cash back on a schedule, as would be the case with debt financing or loans. This frees up the company or venture to keep the cash within the company or venture. This is specifically ideal for companies or ventures that are growing and need the cash to do just that.

On the other hand, regarding equity financing, investors get the benefit of ownership. This means that they can have a say in the running of the company or venture, especially if it falls within their area of expertise. It also means that equity investors receive a share of the profits — when they happen.

These are the reasons why equity financing frees up cash for the company or venture, while any financial returns often come at a later date. Yet there are some considerations investors in equity financing should make when considering investment options.

Know what you’re investing in

First, any investor should get a firm assessment of a company or venture’s financial numbers. As much as this may seem obvious, with private investing, financial disclosure isn’t as regulated as it is in the public markets, which means you have to do you due diligence: What are the company’s working capital, fixed costs and marketing needs? What are the company’s financial objectives, and do they fit with your own investment objectives?

Second, just where do you fit in with the company or venture. How much control of the company do you want? What do you think of the management that’s currently in place? What say will you have in any future management changes, if any are needed.

These are the kinds of considerations investors should engage in when they decide to put their own money into the ownership of an investment opportunity. After all, it is your money. Make sure you invest it wisely.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

What exactly is an “alternative asset?”

alternative asset definition

Alternative investing has grown in popularity over the years, for a variety of reasons. The most obvious reason is a desire to look away from traditional public investing, such as the stock markets. One of the keys to successful investing is to find an edge that isn’t available to others. That’s why alternative investing has succeeded because it’s, in part, the desire to seek uncommon investment opportunities.

But, in investing, it’s important to get the terminology right because a failure to do so can quite literally mean making bad investment decisions, which means losing money. None of us want to do that, do we.

Specifically, there might be some confusion as to what the term alternative investing refers to or, even more specifically, what the term alternative assets refers to. So, let’s take a closer look.

Not found in traditional markets

Alternative assets are essentially anything you won’t find in the traditional public markets. Stocks and bonds are most commonly associated with the public markets. That definition of alternative assets can leave wide open a lot of possibilities, can’t it, so the term alternative assets can be defined even further or, more accurately, divided even further.

One form of alternative asset essentially consists of rare holdings, or things people collect. So, examples of such alternative assets include things like rare coins or art. Now, many people wouldn’t necessarily consider such items as forms of investments, but they are. They tend to appreciate in value over time, and people who specialize in this type of investment can certainly benefit from high returns.

Another type of alternative asset is one that’s generally associated with professional investing, but not with traditional investing. So, examples of such professional types of alternative asset management include hedge funds, private equity, and other established alternatives that would be familiar to professional private investors.

More connected to investments

Now, real estate can also be considered a form of alternative asset, and we’re not talking about buying and selling properties for personal or business use, but for the purpose of buying and selling in order to make a return. This is probably one of the oldest forms of alternative investing, around which an entire industry of expertise has developed.

Yet, regardless of the type of alternative asset being invested in, there are some important common characteristics. In many cases, investors are seeking the kinds of returns you won’t find in public markets. In addition, alternative assets can involve a kind of personal expertise and connection you also won’t find in public markets. And the more knowledgeable and connected you are to an investment, the more likely you are to reach your investment objectives.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

The state of private investing

private investment growth

There has been no shortage of public discussion on the state of the world’s public stock markets. Even President Trump himself hasn’t hesitated to boast about the rapid rise of stock indexes during his time in office.

However, as we’ve been constantly preaching on these very pages, the stock markets provide a very shallow and short-term snapshot of the investment environment. Instead, long-term investors should look at other pieces of information, which is what we’ll do presently.

A rising trend continues

For example, according to a report issued by global consulting firm McKinsey & Company, titled McKinsey Global Private Markets Review 2018: The rise and rise of private markets, which was released in February of 2018, although the rise in the public markets was well documented for the period in review, with the S&P rising by about 20 percent, for example, the private markets kept up the pace, too. Specifically, for the period in review, private asset managers raised a total of almost $750 billion globally, which furthers an upward trend that began eight years previously.

On the local front, the Canadian Venture Capital and Private Equity Association (CVCA) in September of 2018 released its review of Canadian private equity and venture capital, and came up with a number of positive findings. Specifically, venture capital investment continues to rise in Canada, with $1.7 billion raised across 308 venture-capital deals for the first half of 2018, which represents a seven-percent increase from the previous year. This continues a five-year positive trend in terms of size and volume.

All’s well on the local front

In addition, the CVCA reported a robust market for private investment for both early-stage and established firms, with the backdrop of a high-growth and low-interest landscape combined with a high level of “dry powder” (highly-liquid marketable securities or large amounts of cash reserves) boding well for the country’s private-investing sector.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

A trend in private-equity investing

private equity growth

Being in the business of private investing, there is no shortage on these pages of touting the benefits of private investing, explaining why it’s become more popular, and how it can meet the investment objectives of forward-thinking investors.

So, when we come across news and reports that confirm what we’ve been saying all along, it kind of feels good. For example, according to an article at Bloomberg, private investing, equity, etc., is becoming even more common, and the example of hedge funds is highlighted.

A viable alternative

As some of you know, a hedge fund is essentially a pool of alternative investments. They are often created to provide greater returns than traditional funds while “hedging” against the trends of traditional investments to be found within an investment portfolio.

As with many alternative/private investments, hedge funds can allow certain types of investors, including accredited investors, to avoid some of the regulations and requirements of investments found in the public markets. As a result, a hedge fund can be seen as one big private investment that, in a nutshell, provides all the benefits of private investing: greater returns, manageable risk, less regulation, hedging against market trends, etc.

A growing trend

Specifically, hedge funds and their managers are increasingly turning to private equity in order to achieve greater performance. According to the Bloomberg article, in 2018, hedge funds that are offering or planning to offer private-equity vehicles constitute almost 30% of all hedge funds, which is an increase from under 20% just two years ago.

In addition, venture capital is a particular source of optimism when it comes to utilizing private equity within hedge funds. As cited by Bloomberg, a report by KPMG states that more investors put money in venture funds in the first three quarters of 2018 than in all of 2017.

The reason trends like these occur is because there is a demand for investment performance that exceeds traditional publicly-available securities. Forward-looking investors can look for and anticipate these trends in a way that meets even the most demanding of investment objectives.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

Private financing is the new normal

private sources of financing and investment

The word financing can have different meanings to different people. For those that often borrow, financing means securing the money and capital needed to either stay afloat or engage in a new venture. For investors, financing is a form of investment where you essentially provide money to those who need it at terms that are acceptable to both parties.

Matching supply and demand

In other words, financing is a relatively simple concept. It’s about matching those who need money with those that can provide it. Financing has certainly evolved over time. As economies have advanced and modernized, financing moved from private and select transactions to essentially institutionalized exchanges of capital. That’s what the banking system has become, hasn’t it?

But, as with so many aspects of life, we’re coming full circle again as we see private forms of financing becoming increasingly more common. There are many reasons for that. In a nutshell, public financing has become highly regulated, highly predictable and, as a result, highly cautious, too. So, people have turned to private forms of financing.

Finding unique opportunities

Again, there are two sides to the financing equation. On one side, there are those that are seeking sources of money and capital. On the other side, there are those seeking to invest money and capital. So, when private financing is involved, these types of arrangements tend to be very unique, less compliant with rules and regulations, and more open to higher returns.

In fact, private financing has grown so much that the Canadian federal government even has an entire website section dedicated to the sector. From private debt and equity, commercial term loans and lines of credit to microcredit, commercial mortgages and angel investing, the number of ways that individuals and organizations can transact in private investing is as infinite as one’s imagination.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

Toronto on the rise

toronto investment centre

(Photo: Toronto Skyline by tsaiproject under Creative Commons licence.)

The world has become a much smaller place, so to speak, as a result of the digital age. Email, video conferencing, and a whole host of other technologies have meant that face-to-face contact is less needed when doing business. At the same time, however, most people in business, and investments, will tell you there is still no substitute for being in close contact with associates. And a new report by the Conference Board of Canada suggests that Toronto is the place to be for people in financial services.

Specifically, according to the report, Toronto’s and Canada’s financial-services sector is growing extremely rapidly both at home and abroad. GDP in the sector nationally has grown 26 percent within a ten year period, there are now almost 850,000 people in Canada employed in financial services, and exports in the sector are up 80% in that same ten-year period, and now accounts for 50 percent of direct investment abroad.

A bigger piece of the pie

In Toronto, almost 250,000 people are employed in financial services, which accounts for 8.3 percent of the region’s employment, as well as 13.6 percent of its GDP.

Of note, Toronto is on the rise internationally in the financial services sector, too. The city is now ranked second in The Banker’s magazine Global Financial Sectors Index, employment growth in financial services in Toronto is 25% over the last five years, which is well ahead of San Francisco, New York and Boston, and only behind Beijing and Shanghai, and Toronto financial services’ share of the local economy in 2017 outpaced the same North American cities mentioned above.

More opportunities

So, what does this mean to investors? Well, it means that, if you’re going to do business in financial services and investments, it doesn’t hurt to do it in a city that is growing in the sector. It means greater access to countless resources, including people, information and infrastructure, in a way that facilitates all aspects of investing — from having the right contacts to accessing the right technology and information in order to execute more informed investment decisions.

It also means, in terms of international capital, Toronto will get more attention, which means more opportunities for people in the area looking to maximize their own capital and investment growth.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

I told you so?

china united states tariffs

(Photo: President Trump and President Xi at the negotiating table.)

Working in the world of investments, it’s never desirable to say “I told you so” because nobody has a crystal ball and nobody knows the future. However, when it comes to some recurring themes I’ve written about on these pages, it’s hard not to say “I told you so” when it comes to at least a couple of issues of ongoing concern.

First, let’s talk about the news that is generating this latest “I told you so.” The leaders of the United States and China, Trump and Xi respectively, have come to what many are referring to as at least a temporary “truce” regarding the brewing trade war that has been waged between the two giant economic nations.

A temporary U.S.-China truce

Specifically, as of January 1, the United States will not issue new levies on Chinese goods. On the flip side, China has promised to buy more U.S. goods. And, according to Trump, on his most favoured platform of Twitter, no less, China will cut import tariffs on American cars.

This temporary truce is to last 90 days, a period where further progress on trade between the two countries can be ironed out, after which U.S. tariffs would rise from a current level of 10 percent to 20 percent.

Now the first “I told you so” comes from the fact that this latest easing of trade tensions between the States and China is just the most recent example of avoiding the hitting of the panic button every time President Trump engages in trade actions. This is what I’ve been preaching for months. It’s becoming a pattern. Trump makes aggressive moves internationally, everyone panics, and then things start to work out. This happened with North Korea. It happened with Nafta. It’s now happening with China.

Short-term news vs long-term analysis

That’s not to say that things can’t still blow up. Which leads me to my second “I told you so.” You know what the reaction has been to this U.S.-China “truce?” International markets are way up on the news. Again, this is probably an over-reaction to an initial over-reaction. People panicked when Trump raised tariffs, they’re now exuberant that a temporary easing of relations has occurred, for now. So, “I told you so” that the markets tend to act in a herd mentality.

So, the lesson in all this? Smart investors need to keep temporary news in perspective, always look at the long game, and only say “I told you so” when the facts keep suggesting it.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

Making an “impact” with your investments

socially responsible investing

Trends tend to be an inescapable part of life. No matter what sector you look at — whether it’s sports, business or politics — when one group of people have some success doing things a certain way, others follow the crowd. It’s just the nature of things, isn’t it.

Well, that reality certainly hasn’t avoided the investment world, either, which is often — probably too often — a case study in following what others are doing in the hope that emulating an investment approach means emulating its success. But that’s not always the case.

One of the most recent trends in investments is what’s known as impact investing. It’s a bit of an unusual name, since I’m sure most investors want to make some sort of impact with their capital, especially on their bottom line.

Making a difference

However, that’s part of the point of impact investing, which is designed to attach some social benefit to the bottom line, too. Specifically, impact investing involves anything that comes with objectives beyond simply making the greatest return possible. So, impact investing might involve, for example, targeting clean technologies, or infant health, versus, say, tobacco or nuclear energy.

That’s not to say that impact investing doesn’t involve a focus on returns. It just means that a more careful deliberation is made about the kinds of investments made.

Impact investing also differs from what’s traditionally been known as socially responsible investing, or investing that’s had as its primary objective the attainment of some social good. Instead, impact investing is meant to make money, but also adhere to some higher social goals.

Yet, as with any trend, it’s important to avoid following the crowd simply to, well, follow the crowd. And, regarding impact investing, there is some caution to keep in mind.

Always make up your own mind

First, any investment should adhere to one’s moral compass. So, one shouldn’t need a trend to investing in values and principles you adhere to.

Second, sometimes trends need a second look. So, for example, when it comes to impact investing, and as Fortune magazine has already reported on, the available data doesn’t always meet that standards of what shrewd investors would consider valuable and accurate information.

So, when considering the value of any form of impact investing, just remember that you don’t need a trend to do your research and invest in what you believe in.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

Yes, there’s positive news

strong investment outlook

So, it’s been a practice on these pages to preach a positive outlook despite potentially negative predictions. And, of course, if you look at much of the financial press, there is no shortage of predictions that bear caution for the future.

However, it’s time to put our money where our mouth is. It’s one thing to say there is positive news when everyone sees the negative. But, if you look hard enough, and that’s what our job is, you can find the good news. So, let’s start.

Let’s start on the home front

First, according to CBC News, Canada’s governor of the Bank of Canada, Stephen Poloz, says the world economy is strong. Specifically, he says — and it’s what we’ve been saying here for months now — that the current trade tariffs and trade-war prospects can actually have a positive effect on investor psychology when these issues are resolved positively, which has recently happened with Nafta. As a result, Poloz is signalling interest-rate increases by the Bank, and believes the stimuli that many central banks have utilized in recent years are no longer necessary.

Now let’s go to RBC’s Global Asset Management’s investment outlook for the fall of 2018. It says the U.S. economy is continuing to lead global expansion, the strength of the U.S. dollar will continue long-term, and inflation might be pushed higher, but not to “problematic levels.” In fact, RBC says “the consensus outlook for global growth in 2018 and 2019 remains the best since 2011.” I bet you haven’t heard that in the news a lot lately, have you.

Higher-than-expected growth

Finally, according to CNBC, Mohamed El-Erian, chief economic advisor for financial services company Allianz, says the recent downgrade of worldwide economic outlook by the International Monetary Fund (IMF) is too pessimistic. He says that the American economy, fuelled by government and household spending, as well as business demand, will help keep growth above IMF’s expectations.

So, it’s not just us seeing the positive among some of the doom and gloom. There is reason for optimism. And, regardless of what happens, good or bad, investors can always find opportunities where others don’t.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

China on our minds

United States China trade war and tariffs

Investors should always be in the practice of looking for sources of economic and investment uncertainty. For one thing, these kinds of uncertainties can dictate conventional wisdom and guide global economic trends. In addition, it’s always wise to see where the future terrain might be hazardous, and make an assessment of options as a result.

So, when looking for perhaps the greatest source of potential uncertainty in the markets today, one need not look further than China. In case you haven’t noticed, the country is engaged in a budding trade war with the United States, with tariffs already on the table, and even more tariffs proposed if an agreement isn’t reached in the foreseeable future.

Conventional wisdom

Conventional wisdom China
Breaking with conventional wisdom can add colour and insight to economic and investment analysis.

Now, in these blog and commentary pages, it’s often emphasized that we should be careful when looking at conventional wisdom, or at least ongoing media narratives. If you were guided by them alone, you might be tempted to think the worst is yet to come. But, as is often the case with conventional wisdom, taking a second, or even third, fourth or fifth look, might be fruitful.

For example, let’s take a look at President Donald’s Trump most recent foray into trade disputes and tariffs: Nafta, also known as the North American Free Trade Agreement. These renegotiations were accompanied by stiff tariffs on aluminum and steel, which were seen as making trade negotiations that much more difficult. Yet, in the end, a new trade agreement was reached, the USMCA (United States Mexico Canada Agreement), and the end result was a continuation of good trade relations, with Mexico and Canada making relatively small concessions to address ongoing American grievances.

Steady as she goes

There’s no reason to believe something similar isn’t happening with China. In fact, some believe the North American trade dispute serves as a precursor to what Trump has in mind for China. Even Trump critics concede that some of his stated grievances against China have some merit, such as the dumping of steel, as well as currency manipulation, and that some correction in this regard should not only happen, but will force China to modernize some of its economic and trade practices.

In fact, just yesterday, President Donald Trump said he’s hopeful that an agreement with China will be reached. Does this sound like the sky is falling in terms of the impact U.S.-China relations will have on the global investment landscape? Maybe not.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.