We believe...
There is always a tug-of-war between Risk and Reward. No Investment is risk-free in life (see our comments on Government Bonds below).
Equities
Our investment philosophy is rooted in the belief that ownership of assets, be it Financial (like equities) or Real (like Real estate), is the primary wealth creator. This preference for ownership over lending to Corporations or Governments offers long-term benefits. Whatever the ups and downs of the economic and stock market cycles, we recommend Global Portfolio Managers who align with our Investment Philosophy and managers who focus on business fundamentals. Companies that are industry market-leading with robust balance sheets, high levels of cash generation, no or low debt, and the ability to deliver earnings growth over the long term. We believe this approach to investing is the best way to counter future market volatility.
Fixed Income
Our unwavering focus is on risk, particularly when it comes to bond investments. Our clients' hard-earned money is at stake, and we are committed to managing and protecting their assets with the utmost care. When we advise clients who should invest in Bonds, we primarily focus on the return of our clients' principle, and the rate, while important to be competitive, is of secondary concern.
Risk and Reward
While in theory, Government Bonds are credit risk-free, there remains the risk of losing purchasing power through inflation, as any recent visit to the grocery store today will attest. Investments that offer returns that look too good to be true invariably are, and often devastatingly so. This is why transparency is so important to us: the risk of a specific investment may not be readily apparent. We are cautious about high-return investments, which often come with higher risk. Our approach is to balance potential returns with the level of risk while prioritizing the safety of our client's assets over the long term.
Alternative Investments
Private Equity
Long-term investing in Equities and Fixed Income (see above) provides our clients with diversification, transparency, and liquidity. Private Equity, while offering some diversification, presents a unique set of challenges. These include issues with transparency, lack of liquidity, valuations, and high fees. These distinct challenges make Private Equity a complex and potentially risky investment. We want our clients to be fully aware of these challenges so they can make informed decisions.
There's a school of thought that Private Equity can deliver above-average market returns. However, we maintain a high level of skepticism. The fundamental issue here is the balance between Risk and Reward. When it comes to Private Equity, determining risk is a complex and challenging task. Our skepticism is not a lack of faith in the potential of Private Equity, but a commitment to a cautious and thorough approach to investment recommendations.
We think investing in Private Equity has much in common with investing in a new vineyard. Both Private Equity and the vineyard are long-term, illiquid, and high-risk investments. Some argue that Private Equity can generate above-average market returns, but we remain highly skeptical. Like winemaking, Private Equity managers have many challenges to navigate over a long time horizon. For the vineyard operator unable to overcome obstacles, all the work is for naught and goes unrewarded. Private Equity is similar. Some will argue that Private Equity provides diversification to traditional asset classes -perhaps. However, how much of this perceived diversification results from stale pricing, conflicts of interest, a lack of transparency, and a premium demanded by investors for lack of liquidity is debatable.
Given the challenges and our cautious stance on Private Equity, we place a strong reliance on our in-house RBC Global Asset Management Alternative Investment Solutions when mandated explicitly by our clients. This team identifies Private Equity opportunities. Our reliance on this team's expertise is a testament to our commitment to providing our clients with the best possible investment advice.
