Canadian regulators have approved the launch of Obsiido Alternative Investments Inc., an online portfolio manager that is aiming to provide retail investors and financial advisers greater access to some of the world’s largest private market funds.
Toronto-based Obsiido will announce on Wednesday the launch of Obsiido Direct, an online investment platform that gives do-it-yourself investors access to two alternative investment portfolios that will invest in funds managed by more than a dozen global asset management giants, including Brookfield Asset Management Inc. BAM-T -3.03%decrease, Blue Owl Capital OWL-N -1.47%decrease, HarbourVest Partners, SAF Group and Carlyle Group CG-Q -0.33%decrease.
While Obsiido Direct is currently only open to individual investors, financial advisers can also directly purchase the two Obsiido portfolios for clients on Fundserv, the system used by most financial institutions to access Canadian investment funds.
Typically, private market investments involve complex, long-term strategies that have mostly been dominated by institutional investors – such as large pension funds – or wealthy clients with a net worth over $1-million. But more recently, asset managers have been looking to broaden the distribution of alternative investments into retail markets as both investors and financial advisers seek to diversify outside traditional stocks and bonds.
“We wanted to close the gap that has historically made it difficult for most Canadian individual investors to invest in alternative investments,” Obsiido chief executive officer Nimar Bangash told The Globe and Mail in an interview.
“I found it almost impossible for someone like myself, a working professional from financial services who deeply understands this asset class, to get access to private equity or private debt, or real estate capabilities in any kind of efficient manner.”
Institutional alternative investments represented approximately $18-trillion in assets under management, or 12 per cent of the $153-trillion global investable market at the end of 2020, according to alternatives data provider Preqin. And over the next several years, Preqin reports that the fastest growth within alternatives is expected to be in the private debt and private infrastructure asset classes.
Obsiido hopes to expand private market growth through two new investment funds: Obsiido Alternative Growth Portfolio and Obsiido Alternative Income Portfolio. Both funds equally invest across multiple global managers and can include access to private equity, real assets, private credit and hedge funds. (Private equity is not included in the income portfolio.)
The new funds are offered as some retail investors have grown more cautious about private market options, particularly private debt funds, as some alternative asset managers have been forced to freeze redemptions, known as gating, where investors are not able to take their money out of the funds.
It is for that reason that Mr. Bangash said providing extensive education around redemption schedules and investment returns is essential to succeeding in the retail market. The Obsiido online website includes a learning hub with research papers, blogs and investment definitions.
It is also crucial, he said, for investors to diversify beyond holding funds from a single manager.
“We’re multimanager by design,” he said. “We didn’t feel it was prudent to over-allocate to a single manager or a single type of strategy in a space that is full of highly distinct strategies and managers in order to extract some of the asset class or manager-specific risks that can be found in this market.”
Similar to a robo-adviser model, Obsiido Direct will allow investors to set up an online account, conduct a risk questionnaire and digitally monitor their investment portfolios. (Obsiido is developing a second online platform dedicated to financial advisers that will be launched in the near future.)
However, owing to the higher risk tolerance required with alternative investments, individual clients will first be required to discuss their risk profile with a live portfolio manager on the phone before they buy in.
“Liquidity is a huge ongoing discussion and we want to be clear that even with the advances that we’ve made, these are still not liquid strategies,” Mr. Bangash added.
“Like all private alternatives, these are not things that trade on a daily basis, or even weekly or quarterly. So it’s almost disingenuous to try and put a wrapper around these asset classes and say, hey, we can give you daily or monthly liquidity when underlying assets are not.”
Obsiido will allow redemptions quarterly, although it is recommended to hold investments for at least two years. Management fees for the portfolios purchased by financial advisers is 0.5 per cent. The online platform has a management fee of 1 per cent for individual investors and requires a minimum investment of $25,000. While it’s a much higher minimum than typical mutual funds, it is lower than institutional offerings which can often require minimums in the millions, said Mr. Bangash.
Obsiido’s broad access to a cohort of retail investors and financial advisers has caught the attention of many of the world’s largest institutional money managers.
“There’s a broad consensus among our peers that the institutional market is a very mature market and one we have been very successful building our brand over many, many decades,” Carlyle head of private wealth strategy Shane Clifford said in an interview. “But the challenge now for the industry as a whole is how do we bring those global private market capabilities to the retail channel.”
Based in New York, Carlyle manages more than US$385-billion in alternative assets worldwide. The company specializes in both credit and private equity funds, and has been present in Canada, predominantly among institutional investors, since the mid-1990s.
However, the company has been focused on expanding its retail distribution channel. Earlier this year, it found retail shelf space to begin selling alternative investments at two of Canada’s biggest banks.
“You are starting to see a generational change in wealth management and Carlyle wants to be at the front end of that generational change in wealth,” Mr. Clifford said. “So we need to be partnering with platforms that are thinking about that shift and catering to that shift in terms of being online, using mobile apps and do it yourself investing. That is only going to grow in the years ahead. “
Source : TheGlobeAndMail