What Advisors Need to Know About the BMO Partners Group Private Markets Fund
BMO Global Asset Management’s Alternatives team is pleased to introduce the new BMO Partners Group Private Markets Fund, which offers Canadian accredited investors the opportunity to enhance their risk-reward trade-off through all-in-one access to global diversified private markets. Guillaume Lagourgue, Managing Director, Alternatives, Specialized Sales, and Natalie Camara, Senior Director, Alternatives, Specialized Sales, explain.
Introducing the BMO Partners Group Private Markets Fund
What client wouldn’t love the ability to invest like a major institution? That’s the opportunity offered by the new BMO Partners Group Private Markets Fund, available to Canadian accredited investors.
Many clients may not realize that the vast majority of the investable landscape is in private markets, that globally most large businesses are private, and that private companies outnumber public companies by a significant margin.1
While institutions and ultra-high-net-worth individuals have access to private markets, the barriers to entry are extremely high, including most offerings in closed-end fund format, difficulty in accessing and selecting the right manager, and large minimum investments ($5mm to $10mm USD); many private markets funds are also closed to new investors. The BMO Partners Group Private Markets Fund breaks down these barriers to entry, offering Canadian accredited investors broad private markets exposure through one investment with a minimum investment of only $25,000 (CAD and USD).
Why invest in private markets? For starters, they’ve historically outperformed public markets, as the following charts show:
Source: PitchBook, Global PitchBook Benchmarks, quarterly returns as of September 30, 2022. Annualized Returns. Private fund strategies are preliminary quarterly returns. Public index values are total return CAGRs.
Private investments can be valuable diversifiers that complement public market holdings. This is due to the much wider pool of companies within private markets, which enable access to the broader economy with the potential to lower portfolio volatility and risk and enhance returns over time.
BMO Partners Group Private Markets Fund – Key features:
- Diversified exposure to private markets’ four major asset classes: private equity, private credit, real estate, and infrastructure
- Target Net return of 10-12%, in line with actual performance of Partners Group’s Flagship Fund over the past 10 years2
- Evergreen fund with monthly liquidity, with the ability to periodically adjust a position subject to redemption terms
- Partners Group’s 20+ years of experience, expertise in evergreen private markets, and established reputation with leading global institutions
- $25,000 minimum investment
- Registered plan eligible (RDSP, RRSP, RRIF, RESP, TFSA)
Investing like a pension plan
The largest institutions have long recognized the benefits of investing in private markets. Canadian pension plans continue to ramp up their exposure to private markets, while independent investors lag further behind.
Canada Pension Plan (CPP)/Caisse de dépôt et placement du Québec (CDPQ) – Private assets % of total AUM
Sources: CPP Annual Reports (2019, 2022) (CPP 2022 private credit percentage is from the total in figure 10.3.2: Terms to Maturity); CDPQ Annual Reports (2016, 2019, 2022). While CDPQ does not divide private credit from public credit, it has noted private credit was a key driver of positive fixed income performance in 2016 and 2022 (cdpq.com); Bain & Company, Global Private Equity Report 2023; Preqin, GlobalData.
Why do major institutions and pensions plans allocate so extensively to private markets? Simplistically, for better risk-adjusted returns: higher returns with less volatility (risk) than public markets. Last year, for instance, private investments helped provide protection against historically high inflation and public markets drawdowns. We’ll allow pension plan officers to explain for themselves:
Our diversified portfolio demonstrated resilience in 2022 with excellent returns from our infrastructure, inflation sensitive and private equity assets… Assets correlated to inflation such as commodities, natural resources and infrastructure all performed well last year.
- Ziad Hindo, Chief Investment Officer, Ontario Teachers’ Pension Plan, commenting on 2022 performance3
Our significant allocations to private investments, the strategic decisions to favour quality over growth stocks, and short-term credit over long-term bonds, protected OMERS from the worst six month period of market losses incurred by investors in more than 50 years.
- Jonathan Simmons, OMERS Chief Financial and Strategy Officer4
The four major asset classes of private markets
The BMO Partners Group Private Markets Fund includes holdings in each of the four major asset classes in private markets: private equity, private credit, real estate, and infrastructure. Each of these types of assets provide a different benefit for the Fund’s risk-return profile.
- Private Equity: The “octane” of the portfolio, providing the potential for enhanced returns. The private equity asset class includes diversified holdings across different industries and geographies. These holdings can be sub-divided into three buckets: venture capital, which invests in early-stage startups; growth equity, with includes pre-initial public offering (IPO) companies that are close to or already profitable but need capital to grow; and buyout firms, which are existing businesses whose value can be optimized with Partners Group’s expertise in anticipation of a sale several years down the road.
- Private Credit: Provides stable income and downside protection. With interest rates higher than they’ve been in decades, banks are cutting back on lending to companies, which has made private credit among the hottest areas in private markets. The focus is exclusively on sponsor backed (Private Equity Firms) senior secured investments in non-cyclical and defensive industries.
- Real Estate: Offers contracted cash flows and upside potential. The Fund’s real estate holdings focus on three areas: 1) light industrial, 2) multi-residential units in key areas, such as the rapidly growing southern U.S. states of Texas, Florida, North Carolina, and so on, which have seen the demand for affordable housing skyrocket; and 3) the conversion of commercial office units, most often outside of downtown cores, into spaces for healthcare and pharmaceutical companies, which typically require purpose-built labs and other facilities. Notably, the Fund does not look to invest in downtown office towers, which have been something of a distressed asset in the wake of COVID-19 and the shift to hybrid work. They do, however, own a couple of legacy office assets.
- Infrastructure: Another one of the hottest areas in private markets, providing inflation protection and high cash flow visibility. With the green transition requiring investment in new waste management, water treatment, and power storage facilities, and technologies like AI requiring the construction of new data centres and digital infrastructure, the opportunity for investors could be in the trillions.
Fund holdings – case studies:
Breitling: Founded in 1884, Breitling is a leading Swiss watchmaker, with a unique heritage in the industry as the inventor of the modern wrist chronograph and distinctive positioning as a casual, inclusive, and sustainable luxury brand.
atNorth: atNorth is a leading Nordic data center services company offering environmentally responsible, power-efficient, cost-optimized data center hosting facilities and high-performance computing services.
Questions & misconceptions
In discussing the BMO Partners Group Private Markets Fund with Advisors, there are a few questions we hear frequently. They include:
Q: Does the Fund have a lockup period, and how liquid is it?
A: The Fund does not have a hard lockup period. As an open-ended, evergreen fund, it eliminates the need for capital calls, providing immediate exposure to private markets, and automatically reinvests cash, compounding capital over the long term. This allows the investor the flexibility to buy when they want and sell if they need—investors can subscribe on a monthly basis, and periodically adjust or sell their position monthly with quarterly notice and subject to redemption restrictions
The Fund is not as liquid as a traditional mutual fund, and redemption periods are longer. If an investor sells within the first two years, they incur a 2% early redemption fee.
It is worth emphasizing, however, that the Fund is constructed with a long-term view, and we recommend a time horizon of at least seven-to-10 years.
Q: How does the fee structure work?
A: The management fee for the Series F Fund is 1.65% of net asset value (NAV), and the performance fee is 15% above a monthly high-water mark. It’s worth noting that the Fund’s target 10-12% return is based on performance net of all fees. Simply put, the management fee covers day-to-day management of the portfolio and enables the world-class oversight from Partners Group; it serves the same function as the fee that major institutions and pensions funds pay. The performance fee, meanwhile, is only paid if the Fund does well. If, for instance, the Fund has a great month and goes up 10%, Partners Group will receive 1.5%. Wherever the NAV ends up for that month, the managers will have to beat it in future months in order to receive additional performance fees. Performance fees of this type are generally preferred by institutional investors, as they give the managers an extra incentive to beat the monthly high-water mark.
Q: How does the Fund’s returns target of 10-12% compare?
A: First, the 10-12% return target is net of management and performance fees. Against public markets, the Fund’s returns compare very favourably, with better returns and less risk.
Against most private markets funds which are closed-ended, the 10-12% total return of this Fund also compares favourably as it is equivalent to a 19-20% closed-end internal rate of return (IRR). In this respect, the Fund’s evergreen format benefits from fully invested capital and compounding returns.
Why do major institutions and pensions plans allocate so extensively to private markets? Simplistically, for better risk-adjusted returns
Partners Group: A leading global private markets firm
In the world of private markets, who you invest with is just as important as what you invest in. For that reason, and following a comprehensive due diligence process, BMO GAM is proud to bring Partners Group’s global private markets expertise to Canadian accredited investors.
Partners Group is a globally renowned, best-in-class private markets manager that boasts a diversified client base of over 800 institutional clients, including major Canadian pension funds. It operates on a worldwide scale, with over 1,800 employees, including experts in each of the BMO Partners Group Private Markets Fund’s four asset classes. It is also a leader in market share, with US$135B+ in AUM, US$71 billion in corporate equity and US$64 billion in real assets/credit.5
BMO Partners Group Private Markets Fund – terms & structure
|Structure||Ontario mutual fund trust distributed by offering memorandum (OM) to Canadian accredited investors (Feeder Fund), invested into Cayman Islands master fund (Master Fund)|
|Fund series||Series F -retail; Series I –institutional|
|Minimum investment||Series F: $25,000 initial, $5,000 additional; Series I: $5,000,000 initial, $1,000,000 additional|
|Term||Open-end structure (Evergreen)|
|Currency||CAD fund; CAD and USD series available|
|Subscriptions||Monthly subscriptions at NAV|
Monthly redemptions at NAV (with 90 calendar days + 5 business days’ notice)
Redemption gates (% beginning NAV): 7.5% per month, 20% per quarter, and 25% per year2
|Early redemption fee||2% discount to NAV within first 2 years|
|Management fee||Series F: 1.65% of NAV; Series I: 1.55% of NAV|
|Performance fee||15% above monthly high-water mark|
|Investor qualification||Canadian accredited Investor; Registered plan eligibility expected (RDSP, RRSP, RRIF, RESP, TFSA)|
|Fund codes||Series F (CAD) –BMA80502; Series F (USD) –BMA80102; Series I (CAD) –BMA80602; Series I (USD) –BMA80202|
Please contact your BMO Global Asset Management wholesaler for more information about the BMO Partners Group Private Markets Fund.
1 Bain & Company, Global Private Equity Report 2023. Includes companies in OECD member countries with more than 250 employees.
2 Partners Group (2023). Performance shown for The Partners Fund USD I class as of 31 December 2022.
3 OTPP.com, 2022 Highlights, March 14, 2023.
4 OMERS.com, news release on 1H-22 performance, August 18, 2022.
5 Real assets credit includes Partners Group's asset under management relating to private real estate, private infrastructure and private debt as of 31 December 2022.
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