Bank of Montreal BMO-T is joining with Swiss-based private equity firm Partners Group AG to launch a private-asset investment fund aimed at giving a large swath of wealthy Canadians easier access to markets dominated by the largest investors.
The BMO Partners Group Private Markets Fund, which opened Friday, will invest in a mix of infrastructure, real estate, private equity and private credit, with an emphasis on assets outside Canada. To appeal to an array of well-off retail investors as well as smaller institutional clients, it will offer monthly subscription and redemption options, allowing more opportunities to buy in and cash out when compared with more onerous lock-in periods for many private-asset funds.
The new fund is available to accredited investors – a regulatory threshold that typically requires a high annual income or at least $1-million of investable assets – and must be purchased through an adviser.
With an approximate target balance of 40-per-cent real assets – skewing toward infrastructure, along with real estate – and 40-per-cent private equity, the fund is being pitched as a simple way to add private assets to a portfolio of stocks and bonds with a single investment. And it is targeting annual returns of 10 to 12 per cent, averaged out over time.
“A fund like this that delivers all four of the major food groups of private markets through a single vehicle could really be your one-stop solution to be able to build private markets into your book,” said Jeffrey Shell, head of alternative investments at BMO Global Asset Management, in an interview.
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The fund is intended to be the core product in BMO GAM’s expanding foray into selling private assets – the vast array of companies, properties, infrastructure and loans not traded on public markets – to a larger group of investors. In January, BMO launched a previous fund with Toronto-based tech financier Georgian Partners as a gateway to invest in privately held technology companies.
This next fund follows the same playbook. Partners Group – which manages US$135-billion in assets and tailors investment products for more than 800 institutional investors, including major Canadian pension funds – brings the investing and fund management know-how, and BMO can tap its huge network of wealthy clients and investment advisers to expand the fund’s reach.
In doing so, BMO is joining an accelerating race to pitch private assets to retail investors – albeit those who already have a certain amount of wealth. Private assets have mostly been the investing domain of very large institutional investors such as pension plans, endowment funds, family offices and ultra-high net worth individuals. But as pension plans have pushed deeper into private assets, and a sudden rise in interest rates has made fundraising more difficult for many investors, asset managers see upside in expanding their investor base.
That race is not without its risks. Private assets have generally outperformed public stocks and bonds of late, but are sometimes considered riskier, illiquid and more opaque than public markets. With interest rates and inflation running high, the market environment is getting tougher. And huge numbers of advisers need training about how to talk to clients about private-asset investing.
With its new fund, BMO is aiming to lower the barrier to entry to private markets. Investors can buy in monthly with a minimum of $25,000 and no need to wait for their capital to be called by a fund manager. It is eligible for investments in registered accounts such as retirement savings plans. And there are monthly redemption windows, with adequate notice, up to limits of 7.5 per cent per month, or 25 per cent per year.
There is also an early redemption fee amounting to a 2-per-cent discount for exiting in the first two years to discourage short-term trading in the fund.
BMO is betting that the investing environment is going to become more difficult. With that in mind, Mr. Shell said, the bank has set investment parameters that are designed to help protect investors from some of those emerging risks.
Those parameters require Partners Group to hunt for investments that can demonstrate a credible playbook to build the value of the underlying investments through good management, rather than relying on heavy use of debt or an environment of rising company valuations to make bets pay off.
“In this environment, we really narrowed our diligence focus on value creation programs,” Mr. Shell said. “We put a whole lot less emphasis on fancy financial engineering.”
BMO spent more than a year looking at 11 managers as potential partners before it chose Partners Group to build the fund, he added.
James Bradshaw