Founders Raj Tandon and Brian D'Costa explain how regulatory shifts open new opportunities for retail investors
Wealth Professional hosted a roundtable discussion with Raj Tandon and Brian D’Costa, founders of Algonquin Capital, to explore how their firm optimizes returns and manages risks in a changing fixed-income environment.
The conversation revealed how regulatory shifts have bridged the gap between institutional and retail investors, providing access to institutional-grade strategies for retail clients.
According to Tandon, “Over the past twenty years, we’ve seen more and more institutional portfolio managers and bank traders opening up alternative asset management firms and creating offering memorandum products. The success of these products showed investors and regulators the benefits of having alternatives in a portfolio.”
This shift has introduced products such as liquid alternatives, allowing retail investors to access more sophisticated strategies.
D’Costa explained that Algonquin's strategies leverage three key tools: “First, there’s the ability to use leverage. Second, the ability to short-sell securities. And thirdly, there is the flexibility to employ derivatives.”
These tools provide “flexibility and surgical precision that traditional products simply can't match.”
One example is the outperformance of alternative fixed-income funds in 2022, where traditional fixed-income investments experienced losses due to rapidly rising interest rates.
“We can then use derivatives to gain exposure to the ten-year interest rate, optimizing our positions across the yield curve,” said D’Costa.
Tandon contrasted their approach to that of long-only managers, who often seek higher yields by investing in riskier securities.
He said, “Unlike long-only managers who must seek higher yields in lower-quality securities, Algonquin is focused on generating yield by leveraging high-quality, investment-grade credit.”
D’Costa emphasized the firm’s ability to manage risks more effectively with advanced hedging tools. “We aim to position our funds in the best parts of the bond market based on where we are in the economic cycle,” he said.
Additionally, Algonquin's alternative strategies offer potential tax advantages.
D’Costa noted, “The structure of a fund, such as a limited partnership, can provide tax efficiencies that traditional mutual fund trusts do not offer.”
Tandon concluded, “Our purpose is to help Canadians get more out of their fixed-income investments.”
