Niche product offers investors the chance to enter space usually dominated by large institutions or ultra-high-net-worth individuals
Invico Capital Corporation believes its Diversified Income Fund offers investors the chance to enter a space that is usually the purview of large institutions or ultra-high-net-worth individuals.
The alternative investment company’s fund specialises in high-yield lending strategies, as well as the real estate and energy sector.
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In the second part of our interview with president Jason Brooks, he admits the niche product, which targets a return of 8-10%, is complex but offers investors a higher-yield diversifier in their portfolio and capital opportunities not readily available elsewhere.
He said: “The reality is that you have to spend the time [to explain] to people why this market exists, what the niche is we’re fulfilling. We have a very consolidated banking sector in Canada, so there are a lot of smaller private companies that don’t have a lot of options to source capital and private equity is pretty limited out there.
“It’s really high-net-worth individuals that do a lot of this, so we’ve organised a product that’s generally been the purview of large institutions or ultra-high-net-worth individuals. I think investors start to see they can play in a space that isn’t easily accessible unless you do it this way or, if you do it [yourself], the average investor isn’t going to make a $2-3 million bridge loan.
“It’s a specialised space but it is a nice diversifier where you can get substantially higher yield out of on a long-time basis with some liquidity. Investors have to be taken through that in a fairly deliberate manner.”
Brooks joked that the disclosures even scare him some days and concedes that the three-to-five year horizon is not for every investor. However, he said the large number of investors in the fund allows them to manage liquidity effectively and that its diversity and active in-house management have kept returns consistent. That, he adds, means happy investors and advisors, who are often fed up answering calls every day the index is up or down.
He said: “We’re 100% sold through the traditional advisory channels and I think they quite appreciate the lack of volatility. We have the disclosure, but not being listed and being able to maintain our distributions for a long period of time, the happiest client is the client that you don’t have to phone and give them bad news, so they like us for that.
“I think from the clients’ side we’ve had well over 4,000 investors, so it’s a very diversified fund and we’ve built that deliberately because we don’t want one major holder. Larger numbers work for us because we can manage liquidity for a lot of small positions, but if we had a position that was a third or half of the fund, if they change their mood, we have a problem.”
He added: “We’ve been meeting distributions and when they need to have liquidity, we’ve never missed a redemption, so that’s also a comfort. That does not mean if we had some kind of systemic economic event we wouldn’t see a bunch of redemption but I think people have some control that although they don’t have immediate daily liquidity, this is a fund that is a little bit different in private markets. It isn’t a super long-term lock-up.”
Brooks admits that fee compression is a challenge when dealing with $1-10 million loans compared to larger ones, but says Invico’s 1.75% rate is competitive in a private market context. He said: “It’s certainly higher than typical passive portfolios these days, but we couldn’t be more different in strategy!”
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