Why alternative markets thrive

There’s an old saying: the road to hell is paved with good intentions. It’s a harsh statement, but it does reflect the fact the results of our actions aren’t always as intended. There’s perhaps no better example of that than in the financial markets.

Recently, Benjamin Tal, who is deputy chief economist with CIBC World Markets, stated in a paper he wrote that recent restrictions in Canada’s mortgage lending industry — specifically, the B-20 mortgage stress test —  has resulted in unintended consequences, such as the rise of the alternative lending market. This echoes other warnings from other sources that the stress test is squeezing Canada’s mortgage and housing sectors.

Addressing supply and demand

Let’s take a step back to assess the situation. Canada has had an alternative mortgage lending sector for quite some time. It was established decades ago to try and increase private investing in mortgages. Yet, even before the current stress tests, this market has been on the rise. Why? Because, it could be argued, the traditional lending practices of the banks have been somewhat restrictive.

Now, let’s turn to the investing sector, which has followed a somewhat similar path to the mortgage sector. Traditionally, most people who wanted to invest did so through the public markets, such as stock markets, investing in traditional securities, such as stocks and bonds, that come with strict disclosure regulations, such as a prospectus.

The freedom to grow

However, this model was not satisfactory to a growing number of investors that wanted to seek higher returns than found in these traditional public markets. Hence, the rise of alternative and private investing in which the regulations and disclosure requirements are relaxed under certain conditions. This meant that investors who wanted to take greater responsibility over their portfolios could do so in order to meet more demanding investment objectives.

So, is there a lesson in all of this? Yes. The lesson is that the alternative markets, whether in mortgages or investing, exist for a reason. They thrive when governments, banks and regulators don’t provide the kind of room for growth and investment that the free markets allow for.

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 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.


A trend in private-equity investing

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

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.


What alternative investing actually means

The term alternative investing is unlike other uses of the term alternative, such as alternative music, alternative publishing, or alternative movies. In all those instances, “alternative” implies something not in the mainstream, or something that is more budget oriented, and more likely to be done in lower-scale venues. This is not the case with alternative investing.

It may have been the case more than a decade ago, but even then, when engaging in alternative investing, it’s not so much a stepping-down, or finding something quirky or different. Alternative investing, for the most part, has always been a means of finding other meaningful sources of investing capital. That’s it.

A departure from traditional investing

The reason the term alternative investing is used is because, in essence, traditional investing, especially investing one does in public markets and stock markets, comes with many rules and regulations that ostensibly are for the purpose of disclosure, openness and public awareness, but can also limit the options for various investors, including large and institutional investors.

So, any type of investing that departs from this more traditional approach will be labelled “alternative” but it’s more an alternative to past practices than it is an alternative to mainstream norms. In fact, alternative investing has essentially become mainstream, and for many reasons.

Alternative investing started to get noticed after the financial crisis of 2008, which was in many ways a failure of the established financial and investment systems. So, as a way of hedging against the failures of such systems, investors started going the alternative route in order to diversify their portfolios in case of another mainstream financial collapse.

It’s about diversification, and more

In fact, alternative investing, if nothing else, can be used as a general form of diversification; to protect investors from stresses experienced with other types of investments. But it doesn’t just have to be about diversification. Alternative investing puts the power of tailor-made opportunities in the hands of forward-looking investors looking for better-than-average returns without undue risk.

And just because it’s called alternative investing doesn’t mean it doesn’t come with regulation and oversight. It just means that much of the scrutiny over alternative investment opportunities come from the investors themselves as well as the investment firms they work with, instead of traditional rules that make unique opportunities less accessible and perhaps less rewarding.

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


Why private investing keeps growing

(Image: Business people shaking hands in agreement by under Creative Commons license. )

The terms “private investing” and “public investing” might not have much meaning to the lay person, and can even cause some confusion among people that have invested in the past. Although the terms in and of themselves suggest how they differ, it’s important to specify what those differences are, and how they can make a difference to investors.

As the names suggest, in general, public investing is more open and transparent, and is done in large part in open forums, such as stock exchanges, while private investing is done, well, in private. But that doesn’t mean public investing doesn’t contain privacy, or that private investing isn’t done in public. It just means the rules surrounding both are different, and in some important ways.

Traditional versus alternative investing

Public investing usually comes with traditionally stricter reporting and compliance requirements. They often must come with a prospectus, a legally-required document containing all important details of an investment, regular reporting requirements, and other regulations.

Private investing, on the other hand, requires almost none of that, and the rules surrounding disclosure and reporting are much less rigorous. While traditionally, this approach was seen as riskier and perhaps less protective of investors, recent history has changed much of that thinking as the investment industry has shifted towards private investing.

In fact, according to the Wall Street Journal, in 2017, $2.4 trillion was raised via private investing in the United States, while only $2.1 trillion was raised via public investing. A few years ago, many investors would never have seen this trend coming. Now, private investing is an entrenched part of the global investment landscape.

The private-investing advantage

So, what does this really mean to investors? Well, it means, especially for institutional and accredited investors with large amounts of capital to invest, that the power of your investments are in your hands. Private investments often involve small groups of large investors with similar interests that can tailor their investments to their own needs.

It also means that such investors now have more places to go to in order to find experts in the field knowledgeable and experienced enough to find private investment opportunities generally not available on the public markets.

In essence, private investing should be a win-win situation for everyone involved, as long as you’re connected with the right people seeking the right opportunities to achieve higher-than-average 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.


When private investing is the better option

People invest for a number of reasons. Some want to put their money to good use, instead of simply spending it or having it sit in a low-interest bank account. Others want to preserve their capital with the aim of having a comfortable income over time.

However, if you look at some of the history of investing, and your goal is to incur substantial growth with your investments, then perhaps another approach should be considered. Specifically, private investing offers the type of substantial return that one won’t necessarily find with more conventional forms of public investing, such as your typical stocks, bonds, etc.

A custom-made approach

So, why is private investing a potentially more lucrative option for investors willing to take some manageable risks with their capital? The simple answer is that, although private investing takes more time and research, the information gained from such efforts allows the private investor to know his or her investment opportunities better and, as a result, focus on those opportunities that are seen as being more rewarding long-term.

custom private investing

To use a real-world example, private equity is similar to making a custom-built high-end product, versus something that is bought off the assembly line. Think about it for a moment. If you want, let’s say, the best racing car in the world, would you buy one of thousands made in a factory, or one custom-built in a custom shop by a custom designer presiding over a custom-picked staff and personnel?

The answers seems pretty easy, doesn’t it. If you want the best, you get the best custom solution, even if it initially costs a little more, and you have to wait for it a bit longer. In the end, you’ll get rewarded with quality, and get your money’s worth, too.

Well, the same holds true with the potential of private investing, versus traditional public equity. With private investing, you, or experts working on your behalf, take the time to learn what the best private investments are, which generally aren’t available to the public, and experience the rewards of such custom-made investment strategies. It only makes sense, doesn’t it?

A history of success

And, if you look who historically has benefited most in terms of investing history, private investors, using a strategy of private investing, have fared rather well. Warren Buffett has made a fortune investing in private companies. As have other forward-looking investors who took the time to seek higher-yield investment opportunities, versus some of the cookie-cutter options available to everyone on the stock market.

In addition, private investing can also add something else to an investor’s portfolio: diversification. For example, even though Warren Buffett certainly made much of his fortune in private companies, he’s also been a disciple of investing in the stock market. Of course, what such a diversified approach and portfolio provide an investor is protection from performance failure in once class of investments versus the other.

Therefore, when considering your options as an investor willing to take on some risk to achieve capital growth, private investing is something that has a track record of success, while at the same time providing that always sought-after diversity that is a component of many cherished investment portfolios.

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

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