Invest Like a Pension: Give Clients Hassle-Free Access to Exclusive Private Markets

Key Takeaways

• New BMO Global Asset Management (“BMO GAM”) and Partners Group offering is an evergreen fund that dynamically invests in non-public assets within private equity, real estate, infrastructure, and credit globally.
• The Fund is designed by BMO GAM and can be used as a long-term building block in portfolios, complementing public market holdings with the potential to reduce risk and enhance returns.
• Partners Group is a leading global private markets firm with $142B (U.S.) in AUM and around 800 institutional clients. The firm provides a range of bespoke private markets solutions.

Thanks for speaking with us, Alex. Let’s begin with the origins of the BMO GAM and Partners Group relationship. What opportunities did each organization see?

AS Firstly, Partners Group is strongly aligned with BMO GAM’s efforts to help improve access to private markets. While BMO was looking for a partner with a strong track record of investing in private assets around the world, Partners Group was seeking one with the kind of scale, sophistication and access to the Canadian market that BMO can provide. It was a natural fit for both organizations.

The landscape of what most investors in Canada have access to from an alternatives perspective, as well as a private markets perspective, is limited. We think a BMO GAM-Partners Group platform built specifically for the Canadian market can have a meaningful impact and believe an evergreen fund makes the most sense as a core solution for many investors’ portfolios. Our goal was a global, evergreen private market strategy that gives investors a simplified solution that can offer very attractive return potential as well as diversification. This partnership has a depth of experience in managing a fund focused exclusively on private asset classes that is virtually unmatched in Canada.

Can you explain how Partners Group can access global opportunities, and what advantages that brings for a product like this?

AH We have over 500 investment professionals working on behalf of our clients globally to find the best investment opportunities. Each professional is a specialist in their respective asset classes and strategic focus areas. Partners Group has investment committees that evaluate each idea those specialists bring to it, which ensures we are investing in many, if not most, of the very best opportunities. It’s the portfolio manager’s responsibility to identify what the portfolio needs and make the best use of the next dollar invested by our clients—capitalizing on that next opportunity occurring right now. Partners Group has a long track record of doing this. We currently have around $40 billion (U.S.) in assets under management in our evergreen funds, such as the one BMO GAM is now offering to Canadian investors.

What specifically are the kinds of assets this Fund invests in, and what are the advantages of getting that exposure?

AH We use the term private markets as a general umbrella that encompasses four asset classes: private equity and private credit as well as infrastructure and real estate—sometimes referred to as real assets. Within those asset classes, we follow three overarching giga themes that drive our investment sourcing efforts: digitization & automation, new living, and decarbonization. On a very tangible level, example investable assets might include physical therapy chains, vision care clinics, data centres, engineering and software firms, or multi-family housing developments and logistics centres.

AS The way we refer to this quite often at BMO is the four food groups. What this fund offers is centralized ownership of a private markets experience, through which Partners Group is going to drive the portfolio to an expected return by blending the different ingredients of real assets, private equity, and private credit. That’s why I like the term food groups, because really, we're building an entrée based on a recipe that Partners Group has developed. The Fund is a one-stop solution to access a dynamic allocation to those four food groups.

In terms of the benefits, you’re getting access to high-quality assets in a way that is making the very best use of that next dollar of investment— whether it's bucketed as a real-estate investment, or infrastructure, or private equity, the fund is going to invest in the very best opportunity available across the four food groups at a given time. The nature of this evergreen structure allows the use of incoming fund flows to dynamically allocate between the four asset classes.

Who should invest in this fund—what is that investor profile?

AS There are minimum requirements to access this Fund, which include an initial minimum investment of $25,000. But what we’ve done is remove the conventional barriers of entry to private markets that have historically limited access to only institutional involvement. This Fund has been designed for use by all Canadian accredited investors. We’ve heard from the Advisor community that there’s a lot of difficulty in accessing these institutional-calibre funds. This Fund solves the structural challenges for non-institutional investors to gain that access; it’s a single-ticket, always-available, fully invested entry into these asset classes. If you’re Mr. and Mrs. Smith who are accredited investors with $50,000 to invest, or a $50-million corporate pension, or a $5-billion sovereign wealth fund, you’re getting allocations to the same investments. For the Advisor channel, I think it’s really important to understand you’re getting access to the same opportunities as far larger investors.

This Fund, however, is not intended for active trading or investors with short time horizons. I had an interesting discussion with an Advisor who asked, why doesn’t the fund offer daily liquidity? You really don’t want a daily liquid private-markets portfolio because it would create such a significant mismatch between what the fund holds and invests in. I said to that Advisor, ‘Listen, if that’s what your client is looking for, this isn't the right product for you.’ There is a three-month notice on redemption, which is a liquidity feature that provides much more flexibility compared to private-market, closed-end funds—the investor isn’t subject to the often stringent lock-up terms that other funds typically place on them.

Based on that suggested longer-term time horizon, it appears this Fund should probably represent a core holding, rather than a satellite. Is that correct?

AS Absolutely. Consider for a moment the portfolio that all Canadians own, the Canada Pension Plan (CPP). Half of its investable assets are in private markets. Once a client makes that connection, it's an easy conversation to have. Using that example as a starting point, we tend to talk about a 30% allocation for clients in alternatives, i.e., holdings that are diversified away from pure stock or bond exposures. We think this fund, specifically, and private markets in general, should be a significant portion of the portfolio.

AH A typical private markets fund is generally a seven- to 10-year commitment. That’s the kind of timeframe investors should be thinking about. Using our comparable vehicle in the U.S. as an example, more than 60% of the capital that was invested in 2010 is still invested in the fund. That's almost 14 years now that those investors have been invested with us. The benefit to investors from taking that longer-term perspective is that, historically, private assets have outperformed public markets over long periods of time.² If you have that time horizon, why not capture that additional return, and let it compound?

There are some features akin to a closed-end fund, such as a minimum time commitment. Can you elaborate?

AS The first thing to understand is that this Fund does not have a lockup period, unlike many closed-end private market funds. We have a disincentive on redemptions in the first two years—an investor who wants to redeem within the first two years will incur a 2% discount to the current NAV, which is pretty standard. And really, that's meant as a further incentive for an investor to look at this fund as a long-term core allocation. But beyond that, there is no lock in, or lock up. There is also monthly liquidity with quarterly notice—meaning an investor will need to provide 90 days notices, plus five business days when they want to redeem.

This is very much a buy when you want, sell if you need type of fund. Investors should be thinking about this exposure on a very long-term basis. Ultimately, the restrictions on liquidity should be thought about as a portfolio protection mechanism. This is a private assets pool. One doesn't want to be in a situation where those assets are being liquidated at too high of a rate. From a diligence perspective and an understanding of the marketplace, we’ve done a lot of work through our comparable evergreen funds in the U.S. and elsewhere to effectively manage liquidity over many market cycles, and these requirements work very well.

Lastly, Partners Group has collaborated with many financial institutions around the world to provide private-market solutions. Can you give me a sense of the success this kind of product has had elsewhere?

AH Let’s look at the U.S. market as one example. With our equivalent U.S. funds, Partners Group partners with the largest distributors and has had incredible penetration in the Advisor and wealth channels. It’s a testament to the success we’ve had over time, our track record, and ultimately the value we can provide clients.