Darren Matte, editor of Wealth Professional magazine, talks to Joe Pochodyniak, senior portfolio manager at MacNicol & Associates.
3 Big Questions breaks down three questions that our team has pulled from wealthprofessional.ca that advisors and industry professionals have been searching for.
Darren Matte: Today, with Joe being an expert when it comes to alternatives, we're going to talk a little bit about them and their place in portfolios in these uncertain times. Joe, what have you observed as the most popular category recently when it comes to alternatives?
Joe Pochodyniak: I think by far the most popular category of alternatives that we're seeing in our business is private equity and the extent to which the COVID pandemic and lockdowns have essentially accelerated trends that were already in place. So, in our fund, things like e-learning, telehealth, remote businesses and that sort of thing have been areas that we've been investing in for a long time, and we think that continues, and if anything COVID has simply accelerated growth in those businesses. It's also important to note that we don't see that unwinding if COVID is miraculously solved tomorrow. So it's a good area for us and we're seeing a lot of interest there.
DM: So how do you think alternatives and specifically private equity will evolve in 2021?
JP: I think that the main thing you'll see is that it'll go from, you know, page 20 of your publication to maybe page 2 or 3, and by that I mean the following. I think what we're seeing again with our business is that a lot of investors are beginning to do their own analysis, and they're looking at their asset mix and realizing that they don't have any alternative exposure, they don't have any private equity exposure, and so they're starting to formulate those views that they feel there is a gap in their overall asset allocation. So I think that's one point. The second point I'll make is that, as the pandemic increases in length, you're likely to see some of the larger private equity funds the Blackstones of the world get involved in in more distressed assets now. Right now we're seeing distress sort of on the periphery of the economy in areas like travel obviously, tourism and leisure. A lot of restaurants and businesses of that nature that are client-facing are obviously struggling. That's not particularly our core focus area, but I do think that in 2021 you'll see a prevalence of not only more in the way of private equity stories generally but also a real gearing towards distressed assets.
DM: So how should advisors approach alternative asset classes, particularly private equity, that they may be looking to add to their portfolio, and what should they be looking for?
JP: Before you can even answer that I think most advisors should start off by asking some questions, and some of the questions that I think are important to consider are: do they have a client base that they service that would be open and accepting to private equity as an asset class for inclusion in portfolios? It's not perfect – I mean it comes with some strings attached. There is a little bit of a reduction in liquidity, which can be a concern to many investors. On the other hand, the trade-off is that you have all of the growth that you might find in public markets, with less volatility. So I think that one of the things an advisor has to do is certainly ask those questions. In terms of, then, how do they approach private equity, there's a wide variety of readings that they can approach through just a basic Google search. There are some institutes that specialize in putting out private equity readings for people in the business, and of course they can contact us. We've been doing it for over 10 years in our alternative asset program. Our firm has been a big proponent of alternative assets and private equity, so we're happy to have those discussions with advisors to see whether it makes sense for their business and their clients.
For more on Joe Pochodyniak, visit macnicolasset.com, and for all the news that matters to advisors make sure to visit wealthprofessional.ca.
