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Tag: investing trends

  • Private equity, private debt and more alternative investments: Should you invest? – MoneySense

    Private equity, private debt and more alternative investments: Should you invest? – MoneySense

    What are private investments?

    “Private investments” is a catch-all term referring to financial assets that do not trade on public stock, bond or derivatives markets. They include private equity, private debt, private real estate pools, venture capital, infrastructure and alternative strategies (a.k.a. hedge funds). Until recently, you had to be an accredited investor, with a certain net worth and income level, for an asset manager or third-party advisor to sell you private investments. For their part, private asset managers typically demanded minimum investments and lock-in periods that deterred all but the rich. But a 2019 rule change that permitted “liquid alternative” mutual funds and other innovations in Canada made private investments accessible to a wider spectrum of investors.

    Why are people talking about private assets?

    The number of investors and the money they have to invest has increased over the years, but the size of the public markets has not kept pace. The number of operating companies (not including exchange-traded funds, or ETFs) trading on the Toronto Stock Exchange actually declined to 712 at the end of 2023 from around 1,200 at the turn of the millennium. The same phenomenon has been noted in most developed markets. U.S. listings have fallen from 8,000 in the late 1990s to approximately 4,300 today. Logically that would make the price of public securities go up, which may have happened. But something else did, too.

    Beginning 30 years ago, big institutional investors such as pension funds, sovereign wealth funds and university endowments started allocating money to private investments instead. On the other side of the table, all manner of investment companies sprang up to package and sell private investments—for example, private equity firms that specialize in buying companies from their founders or on the public markets, making them more profitable, then selling them seven or 10 years later for double or triple the price. The flow of money into private equity has grown 10 times over since the global financial crisis of 2008.

    In the past, companies that needed more capital to grow often had to go public; now, they have the option of staying private, backed by private investors. Many prefer to do so, to avoid the cumbersome and expensive reporting requirements of public companies and the pressure to please shareholders quarter after quarter. So, public companies represent a smaller share of the economy than in the past.

    Raising the urgency, stocks and bonds have become more positively correlated in recent years; in an almost unprecedented event, both asset classes fell in tandem in 2022. Not just pension funds but small investors, too, now worry that they must get exposure to private markets or be left behind.

    What can private investments add to my portfolio?

    There are two main reasons why investors might want private investments in their portfolio:

    • Diversification benefits: Private investments are considered a different asset class than publicly traded securities. Private investments’ returns are not strongly correlated to either the stock or bond market. As such, they help diversify a portfolio and smooth out its ups and downs.
    • Superior returns: According to Bain & Company, private equity has outperformed public equity over each of the past three decades. But findings like this are debatable, not just because Bain itself is a private equity firm but because there are no broad indices measuring the performance of private assets—the evidence is little more than anecdotal—and their track record is short. Some academic studies have concluded that part or all of private investments’ perceived superior performance can be attributed to long holding periods, which is a proven strategy in almost any asset class. Because of their illiquidity, investors must hold them for seven years or more (depending on the investment type).

    What are the drawbacks of private investments?

    Though the barriers to private asset investing have come down somewhat, investors still have to contend with:

    • lliquidity: Traditional private investment funds require a minimum investment period, typically seven to 12 years. Even “evergreen” funds that keep reinvesting (rather than winding down after 10 to 15 years) have restrictions around redemptions, such as how often you can redeem and how much notice you must give.
    • Less regulatory oversight: Private funds are exempt from many of the disclosure requirements of public securities. Having name-brand asset managers can provide some reassurance, but they often charge the highest fees.
    • Short track records: Relatively new asset types—such as private mortgages and private corporate loans—have a limited history and small sample sizes, making due diligence harder compared to researching the stock and bond markets.
    • May not qualify for registered accounts: You can’t hold some kinds of private company shares or general partnership units in a registered retirement savings plan (RRSP), for example.
    • High management fees: Another reason why private investments are proliferating: as discount brokerages, indexing and ETFs drive down costs in traditional asset classes, private investments represent a market where the investment industry can still make fat fees. The hedge fund standard is “two and 20”—a management fee of 2% of assets per year plus 20% of gains over a certain threshold. Even their “liquid alt” cousins in Canada charge 1.25% for management and a 15.7% performance fee on average. Asset managers thus have an interest in packaging and promoting more private asset offerings.

    How can retail investors buy private investments?

    To invest in private investment funds the conventional way, you still have to be an accredited investor—which in Canada means having $1 million in financial assets (minus liabilities), $5 million in total net worth or $200,000 in pre-tax income in each of the past two years ($300,000 for a couple). But for investors of lesser means, there is a growing array of workarounds:

    Michael McCullough

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  • Why did the stock markets fall? – MoneySense

    Why did the stock markets fall? – MoneySense

    Anxiety over the U.S. economy

    Despite some signs of cooling, the U.S. economy kept chugging along even with higher rates, outpacing Europe and Asia. Then came last week’s economic reports.

    Weak reports on manufacturing and construction were followed by the government’s monthly report on the job market, which showed a significant slowdown in hiring by U.S. employers. Worries that the U.S. Fed may have kept the brakes on the economy too long spread through the markets.

    Big Tech movements

    A handful of Big Tech stocks drove the market’s double-digit gains into July. But their momentum turned last month on worries investors had taken their prices too high and expectations for their profit gains had grown too difficult to meet—a notion that gained credence when the group’s latest earnings reports were mostly underwhelming.

    Apple fell more than 5% Monday, after Warren Buffett’s Berkshire Hathaway disclosed that it had slashed its ownership stake in the iPhone maker. Nvidia lost more than $420 billion in market value Thursday through Monday. Overall, the tech sector of the S&P 500 was the biggest drag on the market Monday.

    Japan’s rollercoaster

    The Nikkei suffered its worst two-day decline ever, dropping 18.2% on Friday and Monday combined. One catalyst for the outsized move has been an interest rate hike by the Bank of Japan last week.

    The BoJ’s rate increase affected what are known as carry trades. That’s when investors borrow money from a country with low interest rates and a relatively weak currency, like Japan, and invest those funds in places that will yield a high return. The higher interest rates, plus a stronger Japanese yen, may have forced investors to sell stocks to repay those loans.

    What should investors do now?

    The prevailing wisdom is: Hold steady. Experts and analysts encourage taking a long view, especially for investors concerned about retirement savings. “More often than not, panic selling on a red day is generally a great way to lose more money than you save,” said Jacob Channel, senior economist for LendingTree, who reminds investors that markets have recovered from worse sell-offs than the current one.

    Bitcoin was back up to $56,490 Monday morning after the price of the world’s largest cryptocurrency fell to just above $54,000 during Monday’s rout. That’s still down from nearly $68,000 one week ago, per data from CoinMarketCap.

    The Canadian Press

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  • Couche-Tard looks at acquisitions, and reports earnings drop – MoneySense

    Couche-Tard looks at acquisitions, and reports earnings drop – MoneySense

    The focus on acquisitions comes as the Quebec-based chain behind the Couche-Tard and Circle K banners is preparing for only its second CEO shuffle in its almost 45-year history and battling an economic landscape where customers are proving cash-strapped and less likely to spend.

    When is Couche-Tard’s new CEO taking over?

    The company said Wednesday that Hannasch, who has been with the firm for 10 years, will retire on Sept. 6. When chief operating officer Alex Miller takes over the top job, Hannasch will become a special adviser to his successor and the executive chair of the company’s board, tasked with assisting with mergers and acquisitions.

    News of Hannasch’s future came the same day the company hosted a call to discuss its fourth-quarter performance with analysts.  During the period ended April 28, the chain saw its net earnings attributable to shareholders tumble to $453 million from $670.7 million a year earlier.

    RBC Capital Markets analyst Irene Nattel described the results as “not a quarter for the history books,” but said it was “a better outcome” than the company had seen in its prior quarter.

    Couche-Tard blamed the results on lower gross margins on fuel, the quarter being a week shorter than last year, and expenses and depreciation related to investments and acquisitions, but said the period was also marked with economic headwinds.

    The effects of less consumer spending

    “No doubt, this was another challenging quarter with persistent inflation and continued pressure on consumers who are carefully watching their spending,” Hannasch said.

    On the fuel front, he has noticed customers buying lower amounts per visit. Inside stores, there’s been a gravitation toward private label products and shoppers trading down from premium to lower tier brands in categories like alcohol.

    Cigarette sales have also been “an issue,” he said.

    The Canadian Press

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  • Canada Goose, Lightspeed report earnings – MoneySense

    Canada Goose, Lightspeed report earnings – MoneySense

    Canada Goose reports $5M Q4 profit, YOY revenue up 22%

    Canada Goose Holdings Inc. (TSX:GOOS) reported a profit in its fourth quarter compared with a loss a year earlier as its revenue rose 22%. The luxury parka maker says it earned net income attributable to shareholders of $5.0 million or $0.05 per diluted share for the quarter ended March 31, compared with a loss of $3.1 million or $0.03 per diluted share a year earlier. Revenue for the totalled $358.0 million, up from $293.2 million in the same quarter last year.

    On an adjusted basis, Canada Goose says it earned $0.19 per diluted share in its latest quarter, up from an adjusted profit of $0.13 per diluted share a year earlier. The outlook for its 2025 financial year, Canada Goose says it expects total revenue to grow in the low-single-digits year-over-year. It also says its adjusted net income per diluted share for the full year is expected to grow by a mid-teen percentage compared with a year earlier.

    Lightspeed reports Q4 revenue up 25%

    Photo by The Canadian Press/Christinne Muschi

    Photo by The Canadian Press/Christinne Muschi
    Photo by The Canadian Press/Christinne Muschi

    Three months after Dax Dasilva returned to the helm of Lightspeed Commerce Inc. on an interim basis, the company says he’s staying put. The Montreal-based payments technology business said Thursday that Dasilva, Lightspeed’s founder, has been reappointed as chief executive on a permanent basis, dropping the interim tag from his title.

    Dasilva stepped back into the CEO job on an interim basis in February after JP Chauvet left the company. Chauvet joined Lightspeed as chief revenue officer in October 2012 and replaced Dasilva in the top job in February 2022, when the founder became executive chair.

    “We’re in a new phase,” Dasilva told analysts on a conference call to discuss the company’s latest results. “This is the profitable growth phase of Lightspeed, so (I’m) thrilled to be leading.”

    That new phase, he said, has three objectives:

    1. accelerating software revenue growth,
    2. advancing the adopting of Lightspeed’s financial services products
    3. and controlling costs.

    To improve software revenue growth, Dasilva said the company would invest in product innovation, redeploy account managers to upsell clients and focus on customers that tend to adopt more software.

    On the financial services front, the company wants to get more clients using not just its payments technology, but also its capital and instant deposit offerings. Dasilva’s final objective is to control costs and find more savings.

    The Canadian Press

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  • Reddit is preparing to sell shares to the public – MoneySense

    Reddit is preparing to sell shares to the public – MoneySense

    While it’s not clear from the perspective just how many of those 1.76 million shares will end up in the hands of Reddit users, the number is likely large enough for those users to exert meaningful pressure on Reddit’s share price. The main concern is that a surge of demand for shares that aren’t locked up could create a sudden run-up in the share price, followed by an equally sharp decline once the initial excitement wears off and short-sellers—investors who effectively place bets that a stock will decline—begin to gather.

    That’s pretty much what happened with Robinhood Markets, which operates a simple-to-use and low cost trading platform aimed at novice investors that also offered IPO shares to its users. The company’s stock opened at $38 on its first day of trading in July 2021, shot up to $85 five days later, then plunged back to roughly $40 after just six weeks. Robinhood closed Monday at $16.86.

    “Mishandling this process could result in [Reddit] alienating their most ardent supporters, potentially turning them into critics,” warned Deiya Pernas, co-founder of Pernas Research.

    But, Don Montanaro, president of the trading platform Firstrade, argues that Reddit may not have had much choice but to go this route.

    “They’ve been running a business where their clients, their users, are their product,” he said. “It’s a case of, ‘What else could we do? This is who we are, how could we not offer this to these people?’ ”

    Can I get in on this offering?

    If you don’t already have a Reddit account, you’re probably out of luck. The offering is only available to users who had established accounts as of January 1, 2024.

    Beyond that, shares will be distributed to Redditors and moderators via a formula that accounts for their measurable contributions to the discussion boards. Redditors with high “karma” scores—a measure of their contributions to the community, such as posts that other Redditors find useful, amusing or insightful—will be grouped into six priority tiers for access to the stock offering.

    Moderators who have taken significant numbers of “moderator actions” will likewise be sorted into those tiers. Such actions can include anything from designing a new discussion group—a.k.a. a “subreddit” in the jargon of the site—to removing spam or duplicate posts, to enforcing subreddit rules. Moderators will also be rated on membership trends in their subreddits.

    The Canadian Press

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