Robert Janson wants to make it clear that he’s not opposed to investing in stocks and bonds. That said, the president and chief investment officer at Toronto-based Westcourt Capital Corp. believes too many investors are ignoring the opportunities presented by alternatives in the private market, such as farmland or multifamily real estate companies, to name a few.
"There are different ways to invest," says Mr. Janson, whose firm manages more than $3-billion in assets for high-net-worth clients. "We are for the inclusion of different asset classes."
Wescourt doesn’t sell its own products, but instead invests in funds from firms that specialize in alternative investments such as commercial and residential real estate, infrastructure and agricultural land as well as private equity and debt.
The Globe recently spoke to Mr. Janson about investors’ attitudes about alternatives, some common investments in the space, and a few sectors he’s eyeing for the future.
What’s your take on how most people invest today, generally speaking?
Regardless of clients’ net worth – from $500,000 in an RRSP to someone selling their company for $50-million – we tend to see the same cookie-cutter approach to asset allocation, which is 60 per cent stocks and 40 per cent bonds, or 58-42, or some combination of that.
We believe there are better levels of diversification when you use different asset classes. There are opportunities in the market in places people aren’t traditionally looking.
Why do you think so few investors consider alternatives for their portfolios?
“Alternative” is a taboo word. It evokes the perception of risk. It’s a notion I totally reject.
Alternatives don’t have to be risky. An example is a private apartment REIT (real estate investment trust). It buys the buildings, refurbishes the apartments, collects rents, takes a management fee and pays out the rest. It’s not that hard to understand. A fund like that, because it’s not public, will be classified as an alternative.
As such, there are barriers to the average investor putting it in their portfolio. We bang our heads against the wall about that kind of thing every day. Yet, while frustrating, it’s also a big opportunity for firms like ours.
Did you see an uptick in interest in alternatives when markets dropped late last year?
There was definitely an acceleration of interest in the fourth quarter, with people saying, “Maybe I should revisit those alternatives people are talking about?” because they saw such volatility in their traditional portfolios. I think a lot of people got a rude awakening when they got their year-end statements and saw their portfolios were down or flat.
What’s the most common alternative investment?
Real estate. Media tends to see real estate as an asset that’s overvalued. It’s something I reject because real estate comes in so many different categories, from industrial and commercial to high-rise and low-rise residential. There are also many geographical differences that come into play. Real estate is a really simple addition to one’s portfolio that can help to diversify away from traditional risks in the public market. It can be someone buying real estate directly and renting it out, or through funds like ours.
A lot of wealth can be created by owning real estate for a very long time. Today, people often don’t have the patience to allocate something in their portfolio for the long term, which can be five, 10, 15 or 20 years. Patience can be rewarded. It has been proven with time that – although there has been some volatility and real estate prices don’t always go up – over the long term it has been a smoother ride than, say, the S&P/TSX Composite Index.
One big opportunity we see right now is in Canadian farmland. There are funds that offer investors the ability to obtain exposure to farmland. These funds purchase farmland from farmers and rent it back to them. It helps farmers expand their businesses. Farmland in Saskatchewan has very little to do with the S&P 500, which is what we like about it.
These types of vehicles aren’t to the exclusion of retail investors. If you look hard enough, if you’re curious enough about what’s out there, any investor can come across these types of products.
You also own private equity and debt funds. Talk more about these alternatives and why you think they’re so uncommon.
It’s a huge misnomer – and a barrier I’d like to break down – that private means risk. It’s a lack of understanding and experience in the space that leads to this misconception. All of the private market funds we invest in are audited, they report quarterly financials, and many of them take their level of reporting to the point of being a public company. They just happen not to be public.
The risk is a certain level of illiquidity – you can’t provide an investor with daily liquidity. Just like the banks, not every loan works out. You have to have confidence that the team you’re investing in has the expertise to work through troubled loans. I don’t think the risks are different than what the Canadian financial institutions are looking at, it’s just playing in a different space.
What other sectors are you looking into?
We’re are looking at a fund involved in co-generation units. Co-generation units run off of natural gas, which is far cheaper than electricity, and that generator produces both electricity at a cheaper rate and heat to power a boiler.
That’s real infrastructure, in our view. It’s a type of investment we find fascinating. There’s a social and economic need for it, especially when you look at energy prices in Ontario, which are through the roof. It’s a part of real estate and infrastructure that we expect to grow in the next five to 10 years. You can’t just buy a stock to get that kind of exposure.
Another sector we like is storage facilities. The overhead is low. It’s an extremely non-volatile business with phenomenal cash flow. People will always have stuff to store. We’ve also looked at rail car and aircraft leasing. The boring stuff is sexy to us.
This interview has been edited and condensed.