How Centurion Asset Management became an exemplar of excellence in alternative investment solutions

Esme: [00:00:18] Hello, everyone, and welcome to Wealth Professional TV. My name's Esme Todd, and for this special episode, I'm pleased to welcome Greg Romundt, who is the President and Chief Executive officer for Centurion Asset Management. Welcome, Greg.

Greg: [00:00:33] Thank you. Good to be here.

Esme: [00:00:35] Thank you. I understand Centurion Asset Management offers private investment products encompassing corporate finance, mortgage financing, multi residential apartments and student residences. Greg, how are these funds performing in what's becoming an increasingly challenging market?

Greg: [00:00:58] Yeah, so we have two funds. We have our Centurion Financial Trust, which our Lending fund and Centurion apartment, which owns apartments, student housing and invests in mortgages and developments. The Financial trust follows a barbell strategy investing in debt instruments, but also pursuing upside opportunities or upside participation through warrants or royalty type structures. So the debts have performed reasonably well because the portfolio performance is actually good, with minimal concerns about the ability of our borrowers to pay. But with the equity markets being challenged, the warrant side has performed as strongly. So we've managed to still generate positive returns just less than we'd hope for. But we're encouraged that on the next equity cycle, we should see some good returns on some of our warrant and royalty structures. The REITS absolutely been crushing it. With the year to date returns of around about 11%, the beginning of August and year over year returns of around 18%, which are exceptional given what the public equity markets have done. We've seen very tight rental market activity across the country and we expect this to continue as the ownership market or for housing has really priced many people that are now looking to the rental market. So we think there's lots of upside there.

Esme: [00:02:25] 18%. Awesome. And if I may, what are you providing advisors that is unique in the Canadian market?

Greg: [00:02:32] We believe that CFiT is a very unique strategy designed to earn good base returns with the potential for upside from the opportunity with the optionality we embed in the investment strategy. It's a barbell type strategy and I've always been attracted to barbell strategies to protect capital to get, have opportunities for upside. The REIT is the largest private reit in Canada and is the second largest apartment REIT is either whether public or private in Canada. And we've generated steady returns for investors going back to 2009 when we launched the reiting prior to that when we launched since 2003. And over that time we beat the indices with about a third of the volatility, and we really positioned to fund the benefit from inflation pressures that are prevalent today. Our reit also has the youngest apartment portfolio of any apartment in Canada and a very large proprietary pipeline which we spent about a decade building the reits in excellent condition, in our opinion, to help diversify portfolio, provide strong returns and inflation protection qualities.

Esme: [00:03:46] Thank you, Greg. What sort of growth has Centurion been seeing in 2022 and what do you attribute this to?

Greg: [00:03:52] Well, we've been growing exceptionally fast this year. We closed on $1,000,000,000 portfolio of newly built apartments in Quebec earlier this year. The largest apartment transaction in that province is history. And certainly in our history, we currently have about another billion or so under contract and billions more in the development pipeline. So I think there are a few reasons for this. One, certainly our operating team is very strong, generating excellent returns for our investors from the core operations to our deal team has built a really large proprietary network of opportunities and we seek out to finance, invest and buy new apartments. And the operating team has used these opportunities as feedstock in our engine to produce returns. Three The purpose built rental market is dramatically assured of apartments, which means there are plentiful opportunities for us to pursue. I think. Fourth, consistent results come from support from advisors and our investors giving us the capital to continue to grow and diversify the portfolio and continue to add new feedstock to our returns engine.

Esme: [00:05:07] What are the investment themes that you are pursuing for the right at this point?

Greg: [00:05:12] So one is inflation. We've said that inflation will be non transitory since 2020. When I first published my regime change paper real estate benefits from inflation and in many ways is a leveraged bet on inflation and the reit is well positioned to benefit from that. Two, inflation will be above the cost of debt, meaning that you can borrow money that after inflation is free or near free. And that's an exceptional position to be able to borrow money to make investments with that also generate income. And thus you could potentially win from both sides of the balance sheet. I think that's that's unique in my career. It's been going on for a couple of years now, but it's certainly unique in my 30 year career of managing money to be able to make money on both sides. Three Supply demand imbalances in the supply of housing in general and rental housing in specific provide rich source of opportunities to build and buy new apartments with strongly growing rents due to shortages of apartments that we foresee will last for a very long period of time. For many of our public company competitors are trading at discounts to their NAV because they're correlated to the stock market and thus are locked out of capital markets, giving us fewer competitors. And we're seeing the impact on our opportunity set and we're really focused on capitalizing on a more open space with less price competitive pressures. And the fifth is the pace of new construction continues to grow. And given our focus on this space for almost ten years in the new construction space I'm talking about, we really built this this network of debt and development opportunities which will feed our pipeline for a long time. We've said for quite a few years that Canada will build more apartments in the next ten years than we've built in two generations. And there's almost no chance that Canada can or will build all that's required to meet not only our current needs but population growth over that time. So we just see this as a huge opportunity.

Esme: [00:07:23] Greg Centurion has been a consistent performer over the years. What are some of the drivers of your success?

Greg: [00:07:31] I think it comes down to a few things. One is we've always tried to be a bit of ahead of the market, anticipating where we think the opportunity is going to lie and then pursuing that. We try to look for areas where there's less focus and competition so we can build a competitive advantage. For example, student housing, which we've been doing now for for over ten years, 11 years is something no one was doing at scale at the time. And we executed on that opportunity to build really the first investible platform in that space. We then leveraged that success into building a lending and development program feed. What we saw was a huge opportunity new apartments, given the scale of the shortage. I spent a lot of time thinking about strategy and and build the team around me to execute. I think we hire well. I think we train well and we mentor, mentor our people to give them opportunities for personal and career growth. I believe that we reward them well when they perform and they are committed as a result to our success and that this level of engagement has kept our engines firing is our strong culture has really become our competitive advantage. And I think every every business to be successful has to be able to figure out what their source of competitive advantage is. And that's certainly been, in our case, our people.

Esme: [00:08:50] Well, that wraps up another WPTV special. Thank you, Greg, for sharing what's happening at Centurion. For more information on Centurion, you can visit centurion.ca and you can also check wealthprofessional.com for the latest industry news and sign up for a daily newsletter if you haven't done so already. I'm Esme Todd. Thank you for watching and please join us next time.