Private Investments Come of Age: Opportunity & Balance Unlocked

Pierre Daillie: [00:00:00] Hello, and welcome to Insight Is Capital. I’m your host, Pierre Daillie. In this episode, we are diving into one of the most transformative shifts in investing today, private markets. For decades, access to private equity, private credit infrastructure, and real assets was largely reserved for institutions and the ultra-wealthy.

That’s changing. Advisors and individual investors are increasingly being offered ways into this once exclusive world. What does that democratization really mean in practice? What role should private markets play in a modern portfolio? And how are new fund structures evolving to make these strategies more accessible?

To help us explore these questions, I’m joined by Raphaëlle Gauthier-Grenier, Senior Director of Investment Solutions, Private Investments at National Bank Investments, and Ross Nielson, Principal at Apollo Global Management. Raphaëlle leads the development of [00:01:00] private and alternative investment products, bringing deep expertise in structuring solutions that bridge institutional strategies and individual investors.

She holds CFA, MBA and FP designations and has been driving innovation at National Bank Investments since 2019. As Principal at Apollo Global Management, Ross leads the firm’s growth strategy within Canada’s wealth intermediary and high net worth channels. He brings more than 25 years of experience in financial services spanning both asset management and corporate banking.

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Pierre Daillie: Raphaëlle, Ross, welcome. It is terrific to have you with us.

Ross Neilson: Thank you very much, Pierre. Appreciate it.

Raphaëlle Gauthier-Grenier: Thank you [00:02:00] very much.

Pierre Daillie: Before we kick things off, I wonder if you could tell us a little bit about your careers, how you got into the private market space, in the first place, and what you’re working on these days.

Raphaëlle Gauthier-Grenier: Of course. So I began my career in branches, working directly with clients as an advisor. Early on I really discovered a strong interest for investments, and I decided to take on a various roles in the mutual fund distribution. And then I, dedicated the second half of my career to invest in product structuring.

First on the public mutual fund side, but now since a few years, in charge of the private investment strategy at National Bank Investments, with a clear focus on developing these, this offering and making NBI a leader in that space.

Ross Neilson: I started in the industry back in the sort of mid to late nineties, and was lucky enough to find myself a job at the entry level, at a mutual fund company and work my way up through sales and a variety [00:03:00] of sales roles.

About halfway through my career, I made a switch over to corporate banking, working for a couple of large US institutions that had corporate banking operations here in Canada. And I returned to the asset management business back in 2013. Got really more focused on alternative investing and had an opportunity to move over to Neuberger Berman, which was predominantly to bring, private markets, funds into Canada.

I was approached by Apollo about a year ago and was given the opportunity to come over here and build out their Canadian business. I’m really focused a hundred percent now on alternatives.

Pierre Daillie: Let’s start wide angle. Private markets have been gaining so much momentum globally and here in Canada. From where you sit, what’s behind this surge in attention? Why are advisors and investors suddenly leaning in more than they did even a few years back?

Raphaëlle Gauthier-Grenier: There are lots of reasons for that. The first one is really the democratization of private markets, and what that means is that a lot of new products on our [00:04:00] available to retail investors. These are open-ended product or evergreen, as you said earlier. so it really shifted from traditional investments who were made, designed only for institutions and very ultra wealthy families.

These were products with very long. long time horizons. So they had to be held for 10, 15 years with no liquidity or very little liquidity. But now the products that are in some markets today and what you design at National Bank Investments are products that are open-ended, that you can get liquidity very more frequently, that are tradable on platforms that are, really wide recognized and wide new widely used by advisors.

So it’s what’s’ created that interest from advisors across Canada to really get access to private market. There are other trends. The second one probably is that now active marketing is really made, regarding private investments, which was really not the case a few years ago. And there’s active [00:05:00] wholesaling, in the market.

So now advisors are… those strategies are pitched directly to advisors, which was not really the case a few years ago. And also we see banks, making partnerships as us or even others, where, this sends a clear signal in the market in Canada. Because distribution is Canada is really, is all driven by also banks and their distribution channels.

So when they start incorporating these products for retail investors, it creates something big. And now everybody looks at that and really tries to understand a little bit what happened now. And maybe I, and then maybe Ross, I’ll get your fixed perspective on that. But there’s also a saturation in the institutional market players, where, private equity firms and private credit firms are looking for new sources of funding and new capital bases.

So now they go directly to retail, something they didn’t do before because they had enough to just do their [00:06:00] businesses. But now retail are becoming a very good opportunity for growing their business. This is why they, really want to reach out to those. And maybe Ross, I’m pretty sure you can add a little more on that.

And also what happened after the Great Financial Crisis and the shift we saw from a little bit more public to private.

Ross Neilson: Absolutely. I think, one of the key things as well is that the demand works both ways. I think there are more and more companies that are accessing private markets, as opposed to public markets, to raise capital.

And obviously institutions have a limit in the amount that they can invest in those areas. So it’s really important to find other sources of capital for these companies. As Raphaëlle mentioned, after the Great Financial Crisis, a lot of the banks in the United States moved away from their traditional private lending, for a variety of reasons, both structurally and also due to regulation.

And firms like Apollo and our competitors, were able to step in and fill that void for [00:07:00] many years. As Raphaëlle mentioned, it was really the space of the large institutions and large wealthy families that began to access that. And then over the last couple of years, it’s been both inbound demand from retail investors and high net worth investors that are maybe below that single family office size, that have interested interest in the space, and also innovation structurally that have allowed us to create products that actually fit more readily into advisor portfolios that have hit the perfect timing in the last couple of years to open this part of the market up to more retail investors.

Pierre Daillie: At the entrepreneur level, which is, the, business owner who also, likely happens to be the high net worth or, well-heeled investor looking to invest.

if anyone understands that space very well, it’s that. It’s that entrepreneur, right? they’ve gone through their trials of raising capital, [00:08:00] going to traditional banking and finding that difficult, and then seeking out other sources of capital, like private markets in order to help capitalize their businesses.

And so for an advisor coming to the table with that client, which is a lot of their clients, and beginning that conversation. It should be fairly natural to have that conversation because suddenly it’s an eye-opener. it’s, you mean I can actually invest in these areas of the market where, it was impossible before.

Raphaëlle Gauthier-Grenier: You’re completely right. Yeah, completely. Exactly. And then when you do that, it’s a natural fit, as you said, with entrepreneurs. But before that, if you were to go to a private equity deal, you had to come in with 20, 25 million. Exactly. It’s one deal. No diversification. No strategy. Only one manager.

And that was a very big blocker for many, [00:09:00] clients that were wealthy, but we’re not ultra wealthy. So now the conversation can be around that and how the businesses are structured and how they can invest in those. Because like private markets are not that different to like companies and what public market do.

It’s just another way of doing it. It’s financing or investing in equities, but it’s the same kind of investment as the rest.

Ross Neilson: Yeah, absolutely. I think it’s a big education for advisors as well. But once they get their clients comfortable, often, especially those entrepreneurs will understand exactly what’s going on.

It just takes a little bit of education. because they’ve historically been investing in public equities and ETFs and more traditional mutual funds. So to wrap their head around the different structures of liquidity, et cetera, it takes a little bit of time. But once they, they view it as something very similar to their own business, they become much more comfortable with it.

Pierre Daillie: It might be as simple as just pulling back the curtain and,

Ross Neilson: absolutely

Pierre Daillie: showing that, [00:10:00] that end investor, that client, how it all works. We keep hearing, we keep using the word, the phrase democratization of private markets. And it, can sound like a buzzword at times. what does it actually look like on the ground?

How is access changing for Canadian investors who aren’t institutions or ultra wealthy families?

Raphaëlle Gauthier-Grenier: I would say it’s not a buzzword, because it’s really what’s happening, Like this is the best way I think to put it. And it’s really giving access to a majority of investors or many investors right now.

And of course for private investments, they have to be accredited investors. It’s technical, it’s the regulation, but to put it simple, it’s like wealthy families. So if you have $200,000 of income per year, or a million investible assets or, and this is very important that you have a discretionary advisor.

And discretionary advisors are, [00:11:00] a lot serve a lot of the clients in Canada. So all these clients have access even if they don’t meet, like their wealthy minimums. So this get also a broad range of clients having access to those products. Now, so this what, this is what represent democratization, and you combine that with the new product that we have.

While we can have like low minimums. So now you can range between 5,000 to 25,000 to get into the product and not 20 to 25 million. So that is very, huge and this is why the access is now getting more simple. You also have like products that are crable on Fundserv. Fundserv is the trading platform that connects all system that advisors are trading on.

So this also is a very big shift. there are of course liquidity and we’re gonna talk maybe a little bit later about liquidity. But, of course those minimums, are so low and you can have so many different ways to get liquidity now that this is what opens up these product [00:12:00] for, clients. And also by that it allows to go into model portfolios.

A lot of our advisors are trading with models. Now you can incorporate some of those products into their models, making it more friendly to trade and explain to their clients and trade in bulk trade for everybody. And we were like, we included our National Bank Investments. We included, private assets since 2018 in our model portfolios.

So we were early in that space and today we sit at around 15% for some of our model portfolios, in private assets. This is really evolving and this is what I mean by democratization.

Ross Neilson: Yeah. I think I would add to it from an asset manager standpoint as well. A part of it, a big part of it is technology.

So it used to be that, we would have firms that would come into our closed-end funds and it was relatively easy to do fund accounting because you would have 15 or 20 or 30 large investors. Who didn’t need to know exactly what the [00:13:00] value of their investment was every month or every single day. It’s much more challenging when you are looking at retail investors, because you could have hundreds, if not thousands of investors.

So when things changed structurally and they started being able to list funds, put funds onto Fundserv. It took the burden of knowing every single end investor off of the backs of the managers like Apollo and others. So working with firms like National Bank, it makes our life much easier because we view them as one client.

So it’s very easy for us to, structurally understand that. And it also helps, that the calculation of the net asset value technology there is also expanded dramatically. So we have third party valuation agents. That have built out the technology to help us say, this is exactly what the portfolio is worth every single day or every single month, or every single quarter.

So that’s helped a lot.

Pierre Daillie: That leads us to the mechanics of how this access, I, know we’ve touched on it already a little bit, but that leads us to the [00:14:00] mechanics of how this access is actually being delivered. I, want to talk about the evolution of fund structures. Traditionally private markets came with long lockups, steep minimums, and almost no liquidity.

That was, that those were significant barriers that kept most investors out, but now we’re seeing innovations like evergreen and open-ended structures. Can you talk about how, or breakdown how some of these newer structures or formats work and why they matter for advisors and their clients?

I think Raphaëlle, you might have touched on it as well, in terms of, how they fit into model portfolios and discretionary accounts, with discretionary advisors, but can you maybe elaborate on, evergreen and open-ended structures?

Raphaëlle Gauthier-Grenier: Yeah. There’s much more to say to it than about that.

So maybe the first thing is that these evergreen structures are really the key to unlocking access to farther markets, but. Before I dive into those structure, I’ll just do a little [00:15:00] bit of, step back to look at traditional private equity funds, let’s say, just so we can, compare both and make sure we understand.

So let’s say you take a private equity cost and fund, like Rus just mentioned earlier. So how, what happens is you have a private equity firm wanting to get at assets to, to raise a fund and to invest in some assets. So what they do is they start their raising capital. So they go to investors.

Investors, okay. They commit an amount. So let’s say commit to you $50 million. But as of the moment of the commitment, no money is given to the private equity firms. So the money gets in, like in the advisor’s portfolio or the investor, and nothing happens. Then the private equity firm continues on that period, and once they close that period, they will say, okay, now it’s, we’re today 2025, the fund starts, so it’s gonna be closed then so nobody can get in.

And then you have a number and a vintage, we call it. So let’s say it would be 2025, a bit like wine, and then you would get that exposure and then it’s left for 10 [00:16:00] to 15 years, and then you would start getting distributions. But as of the calls update, there’s no investment made. So client is still into the investment account.

And then as the private equity firm would find opportunities and companies to invest in, they would start calling capital. So we call that capital calls. And then, when they do that, they will send like 10 to seven to 15 days to the investors unno, and then it would have to send wire the money to the private equity firm.

So we did imagine that this structure is very complex for advisors and retail clients to have all this, to fill and to have managing, like liquidity, mismatch, no access after for 10, 15 years. and then to exit those funds. Of course when you get underlying investments, what you have to do is either you improve the company’s revenues, so you get some streams of revenues, you can get distributions or you exit. You sell to a third party, you do an IPO or whatever.

You can do a few mechanisms, but it takes time to [00:17:00] get onto that and sell the businesses. So this is why it’s very complex and this is what was available before. Now, evergreen structure, what they do is they bundle, those strategies together. So everything like the manager is managing all that burden, paperwork, fiscal optimization, everything, and they wrap it in one product called the Evergreen product.

But you still have the liquidity issue, right? Because, you want to give liquidity to your investors, but you have a liquid asset, so you have a mismatch. What do you do? So what we normally do is we have a liquidity sleeve. Everybody gets it differently, but we had a certain amount of liquid assets on top of that.

Some make it more cash, some replicate, more like indexes of the strategy we’re trying to develop. because in private markets you have a lot of strategies. And then you say to investors, I’m gonna give you some liquidity. Let’s say quarterly. You have some terms, [00:18:00] but now you don’t have anything else to worry about.

You just invest. We do everything for you. Diversification, manager selection, capital calls. Because capital calls are still happening within the structure. And then it’s kind of peace of mind. So that’s, if you can explain it, it’s, really what our evergreen funds are. You want to add Ross on that?

Ross Neilson: Yeah.

And I also think, one of the benefits of the Evergreen pool is that you have so many different transactions that are going into these pools now, that actually there’s a constant flow and an ability to put money to work much more quickly, within these pools. it tends to lend itself to certain aspects of the private markets better than others.

There are some areas where it’s very episodic and so those can be more of a challenge to get money put to work. But in areas like private credit, there are just so many ongoing deals. We have constant deal flow. And also the thing is they actually pay out interest. So there’s constant money flowing back into the fund that allows to [00:19:00] facilitate liquidity and other things.

So not every private deal fits perfectly into, an evergreen structure, and I think that’s something important for people to keep in mind. But with the adva, the advancement of technology, I think more and more we’re seeing a lot of opportunities to put different asset classes into those structures.

Pierre Daillie: Yeah, it’s not hard to see how it has become very investor friendly. To be able to put together these complex structures into a wrapper and make it available to investors in a way that works for them and matches up with their expectations and their, their sort of wishlist of how they’d like to see it work.

It’s, definitely a lot friendlier. and

Raphaëlle Gauthier-Grenier: maybe if I can add on that, I think some are, better than others that structuring those products. What advisors really need to focus on is also how liquidity is managed. Because you have [00:20:00] some liquidity mechanism at the fund level. So let’s lines of credit, what the liquidity sleeve is made of, things like that.

But also as Ross said, at the underlying investment level, like what are the liquidity profiles of the assets you buy? So let’s say to make it visual, like an infrastructure fund is harder to make in a evergreen format than let’s say a private credit or even like real estate credit or real estate types of funds.

So this is also something really to look at. And then the dispersion of return and fund profile between managers is very large. It’s wider than the in the public market. To choose the best managers and making sure you select like strong, players in that field is very important also for advisors.

Ross Neilson: Yeah. One other thing I did want to mention as well is there’s been an interesting shift even in the institutional world where they’re more and more looking for evergreen product. Maybe getting into the weeds a bit, but typically when they’re going into a closed end product. [00:21:00] It has to tie in with their investment time horizon.

So it has to be like, we’re looking to add to private credit who’s in the market right now, and they have to underwrite these new transactions, is it’s the, even if they’ve already worked with the firms, it’s like underwriting an entirely new deal. So more and more institutions are coming and saying, we prefer Evergreen.

We just want to know, we like Apollo or we like Blackstone or whoever it is. We just want to keep giving you money, when we have the opportunity to invest. And That’s also helped us build out better structures because when we have large institutional clients that we’ve already worked with really closely who want evergreen structures, I think that actually benefits the retail client as well, because we’re gonna build it the same way.

Pierre Daillie: And they know exactly what they’re getting Right out right away. Exactly. Exactly.

Raphaëlle Gauthier-Grenier: And also explained a little bit like the growth of the secondary market. Because secondary market is like where you exchange private equity. because there’s no active market.

That’s the point. That’s private. But you also have a place where you can exchange a lot of [00:22:00] those deals. So private like secondaries is getting a, lot higher. And while you have some good opportunities in secondary, but you have also to be careful because you don’t want to buy. because when what happens is you buy asset at a discount and then, you can keep those assets.

Increase the NAV of their value, and then you keep going. But you have to be careful that the firms you’re investing in or partnering with don’t do that in a way that there’s no upside afterwards. So they buy at a discount, big discounts, but then the value of those assets doesn’t have any future upside.

So this is what really advisor and even us when we look at deals, it’s really something we look at and make sure that secondaries is made right. There are lots of opportunities, but in retail products, of course sometimes there are some deals that should not necessarily be there. So that’s why it’s really important to look at that.

Pierre Daillie: So there’s a lot of fundamental analysis, like bottom up analysis. Yeah. In the secondary market, just like with [00:23:00] stock picking you, you want to find… you want to determine the correct valuation and the right discount for that valuation when you get into a secondary.

Raphaëlle Gauthier-Grenier: Exactly. So you need a team like advisors, they have a lot of knowledge.

They, know how to serve their clients. They are very good. It’s just that this is a very specific set of skills. So investment due diligence is very important. So let’s say for us, we work with our pension plan team, which. have a track record for 20 more years doing that for our pension fund. So they work with us to select those best and recommend, investment in that case.

So it takes a really good team, to really go and make sure you get the right deals.

Ross Neilson: I think not unlike traditional mutual funds, there are great managers, average managers, and below average managers. So it’s not all private equity and private credit, funds are the same.

Pierre Daillie: I can, you can see where there is also, there, there’s a great opportunity to unlock [00:24:00] value, right? Every manager has their secret sauce and they may, turn around, look at, a, deal, either, discover that a deal is overpriced, based on its discounted cash flow model.,

and valuations, or they might, see a deal and, see a tremendous margin of safety in that investment and, see where, maybe we could unlock this much more value in this opportunity as well. So it’s, it provides an opportunity set that you can’t really get in public markets because so much information is already discounted into the price of public markets, but in private markets you can see there’s, a lot more inefficiency potentially to unlock value and, opportunity just by recognizing that [00:25:00] things are a certain way. if we zoom out to portfolio construction, where do you see private markets belonging in, in portfolio construction? Is it, is it mainly about higher returns? low correlation, as a diversifier or perhaps, even inflation protection these days?

Ross Neilson: I think that this is a, an evolving topic. If you listen to our CEO, Mark Rowan speak about it, it’s, he is got a lot of great insights.

I think what we’ve typically seen historically in portfolios is it was the old 60/40, which was public equities and public fixed income. Where we are now is I think 60/40 plus alternatives. So now it’s public markets with everything bucketed into the same bucket, and it doesn’t matter if it’s venture capital or really high quality private credit, everything is loaded into that alternatives bucket and people are viewing it as a, way to diversify and a way to get a little bit more yield.

I think longer term and what [00:26:00] our long term view of the market is, that we think at some point in time people have their public bonds and their private bonds or public fixed income, private fixed income, public equities, private equities, and then other alternatives like infrastructure and venture and other things.

I don’t think we’re there yet. But it’s evolving in that direction. 90% of companies are private. We’ve seen the number of publicly listed companies in the US drop from 8,000 to 4,000 over the last 10 or 15 years. which also means that there’s less opportunity to diversify in those public markets.

So I think as people begin to learn this and, another examples, that private credit has grown to $2 trillion market since 2008. I think people realize that if you truly want to diversify, you have to have access to those parts of the market. but we’re still in, I think I always say we’re in the first inning, especially here in Canada. In the US I think it’s two out of five advisors are using private markets in their portfolios.

It’s [00:27:00] less up here, and I think it makes up less than 2% of client portfolios. I still think it is, very much at the beginning of what people are gonna do over the long term, but long term I do think it’s, a necessary diversifier to have access to broader parts of the market.

Pierre Daillie: Thanks, Ross. I, to your, I just wanted to touch on the point that you made earlier, Raphaëlle about the minimums that are established on, with these new evergreen structures.

When you can, get in for five or $25,000 minimums, that really allows for the investor or advisor who wants to take a more gradual approach to this, to wade in at a level that is comfortable for themselves and for their business and for their client. Overall. But, and then to your point, Ross, you mentioned, for example, private credit [00:28:00] as a, $2 trillion market cap.

When you compare that to the 110 trillion or so that represents public markets, market capitalization, that’s roughly 2%. If you’re, a believer in systematic or passive investing, taking a passive allocation across all markets, then that should at least represent 2% of your portfolio.

Private credit should at least represent 2% of your portfolio. Private equity should represent a proportionate exposure. To your overall portfolio and likewise all the other, alternative market caps if you want to, as a, starting point, not necessarily as an aspirational level, but as a starting point for portfolio construction.

It should weigh in, at least at those levels.

Raphaëlle Gauthier-Grenier: Maybe I can also comment on the role in the portfolio and advise, like [00:29:00] private investment can fit so many roles and goals for clients. because let’s say private credit… you can make it fixed into fixed income. More like allocation if you work with very large cap private credit funds like the one we just launched.

But, and then private equity is really more like diversification of opportunities, higher expected return. This is what, why I institutions use it. To give some torque to the portfolio, but even within private equity, you have subsets. So you have Buyouts, growth strategies, or if you really want something to do a home run, you have venture capital, but you have also higher risk.

So it’s really not. Everything is really not equal in that space. And then when you want to go into more like real assets, so infrastructure, real estate, and even agriculture and timberland, this is normally for higher yield, inflation protection. So it really depends on what you want to add in your portfolio if you really, like these days we hear a lot of advisors wanting things to uncorrelate with public equities.[00:30:00]

Like our real asset is very like, popular in that sense for now. Many clients have a lot of real estate exposure already. because they have, homes, they have, rental properties, so sometimes they want to have something else. So then private credit could be interesting. So it really depends on who clients needs, and how it fits into the, their whole financial planning at the end of the day.

Ross Neilson: Very much agree. I think, as I mentioned earlier, not all private assets are created the same, and I think over time, they, like right now, they sit in the same bucket. I speak to advisors all the time and they say, oh, I’ve got my private exposure. And, typically it’s one fund. And I think over time they will start to diversify and realize that there are opportunities, across the spectrum.

And again, as, Raphaëlle mentioned, it’s everything from really, high quality private credit that, I often will fit very simply in a fixed income bucket all the way to the, most risky, secondaries or venture cap buckets as [00:31:00] well. So I think over time we’re gonna see that diversification come.

It starts, I think with the, structural changes that allow people to access it. And over time it will be high quality companies launching great products and advisors, getting comfortable with the structure and then beginning to that diversification process.

Pierre Daillie: Exactly. let’s, talk for a moment about the opportunity set of private markets.

One, one and, to your earlier point, Ross. One. One remarkable revelation that still gets me about private markets is that in the US today, for example, it’s an eye-opening fact that over 90% of companies with revenues exceeding $100 million per year are private and proportionally that’s true in Canada as well.

What do you think that means for investors? I, think, when people find this out, this revelation alone is enough to spark a huge amount of curiosity. We’re not [00:32:00] talking about, thousands of small, mom and pop businesses that are looking for private money. We’re talking about companies that have revenues in excess of a hundred million dollars, being that proportion of all companies in the space.

Ross Neilson: Yeah, I, think it is shocking to a lot of people when they hear that, and I think it’s also growing. As I mentioned earlier, the number of listed companies has, shrunk dramatically, not just in the US and Canada, but in Europe as well. So I think that when clients begin to learn that when advisors are speaking to their clients and telling them that, I think that will also open the door, and make them realize that they’re missing out on a lot of opportunities.

And I think there’s a lot of different reasons for that. I think companies realize that there’s a huge amount of regulatory and reporting commitments that they have to make if they’re gonna list publicly. And so often we’re seeing companies that would have listed and gone public staying private a lot longer.

I think [00:33:00] ultimately the same goal is to exit through the private through the public markets. But more and more firms are saying, "Hey, we’re able to operate, we’re able to raise capital," and they can think a little bit longer term. They don’t have to worry about every quarterly analyst call. and they can actually say, Hey, we’re looking to build something up for five or 10 years.

And, when they’re working with firms like ours on the private equity side, we often understand that a little bit better and we have more patients. That does tie itself to the fact that most investors in that space historically have been institutions, and again, they’re also comfortable with that long-term time horizon.

So that’s gonna be an education process with clients saying that when you’re going into private equity or even private debt, you need to hold these things through a business cycle. and it’s not something that, you’re gonna buy today and sell to go buy a cottage in three months. it’s, hopefully they clients have that understanding that they need to get in these things for the long term.

Raphaëlle Gauthier-Grenier: But that’s regardless of liquidity. But that could be also good for, clients because sometimes it protects against themselves. They don’t get [00:34:00] emotional and they can sell at any time. I think those private assets can keep a kind of bucket of kind of safety against themself for, long term. And also, let’s say you take an objective that is very long term like retirement and retirement account or things like that, it can be also very suited for that as anyways, you’re not gonna withdraw from those investments.

Pierre Daillie: Yeah, it, definitely promotes the, behavioral advantage of patient capital. And that’s a, very big part of, the value of advice too. you, yes. You don’t get to see the daily gyrations of the stock prices of the companies that you own in the private space. That’s a good thing.

You’re actually providing access to the illiquidity premium without the illiquidity.

Raphaëlle Gauthier-Grenier: Oh, you’re right. the i liquidity opinion is something we often discuss internally and sometimes we say, is there really an illiquidity premium in everywhere? I’m not saying it’s there every time. like manager selection [00:35:00] is very important and there’s also a lot of alpha generation.

So it’s, when you analyze it, it depends on where you look at. Illiquidity is present. So advising needs to be aware of that. even if we build structure with that are evergreen, there could be moments where liquidity is more, is less than what they would anticipate or anything like that. But I think it’s really structurally made so that access, there is access to liquidity.

and then you get the full benefits of private assets, whether it’s Illiquidity Premium or Alpha, or just investing in those companies and getting the returns you’re supposed to get.

Ross Neilson: Yeah, and I think, with private credit especially, you look at, historically tight yields right now in publicly listed fixed income across high yield and investment grade.

There are oftentimes where firms like ours are able to structure deals at significant premiums to what you would do in the public markets, and companies are willing to pay that [00:36:00] excess spread for a variety of reasons. It isn’t because they are riskier, riskier firms. It’s simply they want, they want guaranteed outcomes.

They want to be able to work with firms that can come in, with two or three parties that are lending as opposed to, a huge consortium of, lenders. So there’s a lot of reasons why we’re able to generate excess returns. Again, the managers matter. I, think that illiquidity premium, especially in markets like right now we have, ultra hot equity markets that are very concentrated and again, really tight spreads in fixed income.

I think private equities is, and private credit are offering, a lot of advantages in this space. And I also joke about liquidity. I have a tongue in cheek joke where I say, if the S&P only valued once a month and you can only get 5% out a quarter, people might actually do a lot better, because again, it’s, it protects ’em from themselves a little bit. So I think that’s important too.

Pierre Daillie: Yeah, absolutely. that’s, that reminds me of the ongoing, [00:37:00] Dalbar studies, right? Where the investments perform better than the investors. Yeah, absolutely. so let’s talk a little bit about some of the possible nuances in the Canadian marketplace.

What do you see looking at the Canadian landscape specifically? Are there any trends that stand out to you?

Ross Neilson: Sure. I think historically Canadians have always been really big investors into real estate, so I think that was an area that kind of took off, faster than others. as Raphaëlle mentioned, I think everybody’s long real estate, through their own homes, et cetera, but I think people were comfortable with it in the same way that you mentioned that, small business owners and, business owners might be more comfortable with private equity and private credit. because they understand it in their day-to-day lives. I think most Canadians understand real estate. I think what we’re seeing now is there’s been a prevalence of private credit coming to the Canadian market. I think it is a great first step, for people to get [00:38:00] comfortable with it.

I think it makes a lot of sense, again, in the credit environment that we’re in right now, that people are looking for that excess yield. But in spite of, in, in my industry, I hear about it all the time and people, advisors are often saying, oh, there’s already a lot of private credit out there.

But again, it makes up less than 2% of advisor portfolios. So I think that’s where we’re seeing a lot of the growth and a lot of the momentum. I think private equity is going to be the next wave, but structurally it’s more challenging. So I think people have to build it out properly. They have to invest into the right kind of deals.

And work with the right managers. I don’t think it should just be, Hey, there’s an untapped opportunity to raise capital. I think it has to be raised properly.

Raphaëlle Gauthier-Grenier: Yeah, I would agree with you Ross. And I think we see momentum in all asset classes system from out advisors. Probably like private equity is often what they want to talk about when we, meet advisors but they end up buying real assets or, private credit because then the conversation shifts. I think private credit had bad press in Canada, [00:39:00] for a few reasons. Some small payer or, wrongly, I would say structured product had liquidity issues. And it’s created a bit of noise for, advisors. I think when you go in, you really have to take that into consideration and really explain why the products that are launched are more, like I would say, solid or higher quality deals that you’re bringing to the table. So I think that’s also important. I think the, entrance of really banks into that, as I said earlier, is a big trend and that’s gonna, also influence a lot of the market and what kind of strategies, are presented to advisors.

And then I would say that there’s more scrutiny at the gatekeepers level for every dealer. Like what kind of products they accept. They really want to have like higher quality products in-house product. And the reason why is because when it’s a product that is manufactured or where the partnership is made in-house, they have more control or not control, but I would say more transparency on the [00:40:00] holding, and more comfort on the strategy.

So this is why it’s very important to, to get on those platform, really explain the value of the proposition and the way it’s structured from the investment strategy side, but also from the product design side.

Pierre Daillie: You mentioned that the conversation often starts around private equity. I can see why.

We’re dealing, if we’re dealing with advisors, equity is always the subject of the, at the forefront because that’s where growth is coming from in, in portfolios historically. But you said something interesting, which is that, that, it, it shifts then to real assets and, private credit because now is that where you see the most momentum?

Raphaëlle Gauthier-Grenier: Yes. and there’s two reasons, as Ross also said, like private equity when you get into the real liquidity and how it works and, the correlation might be a little bit higher to public equities in some, cases. Also how the products are [00:41:00] structured now. Because you have more liquidity in there.

So it’s really. so they start to really realize that. And sometimes then they say, okay, I want something more lower volatility, maybe uncorrelated a little bit more. Okay. And now I can get yield. I thought like private credit was only super risky assets with leveraged strategies and things like that.

And then you realize, oh no, okay, there’s private credit that really looks like investment grade, in a way. So then they say, okay, I can put that into that portfolio for those clients. And then the company stations gets a little bit more interesting.

Pierre Daillie: Yeah, as a substitute to today’s great environment, volatile bond market, higher for longer.

and really, a lot of uncertainty in traditional bond markets, when you can get into private credit deals where there’s floating rate structures, for example, you’re getting that uncorrelated exposure to fixed income and [00:42:00] I can see in a word it’s ballast, right? It’s the ballast that they’re looking for against the equity risk that they want to keep on taking.

Raphaëlle Gauthier-Grenier: Exactly. And inflation protection also these days is very on top of mind. everybody wants to absolutely protected against that. A lot of assets can really do that job in a portfolio. especially when you talk about you can have like agriculture, you can have real estate, some types of real estate infrastructure, things like that, that generate a constant return over time.

That can also really help, reinforce portfolios.

Ross Neilson: I think another thing that’s maybe a Canadian nuance in working for a large US firm, but being Canadian, I certainly noticed this. Canadians like income. They like dividend paying stocks. They like real estate for that reason. And I think that’s another reason why the conversation will often make its way back to private credit because Canadians like to see yield, they like to see money flowing into their accounts.

Okay, great point.

Pierre Daillie: What do you see as being particularly or [00:43:00] especially attractive right now in the private space?

Ross Neilson: I would say right now, again, private credit is, pretty much the fastest growing part of the market, even in the us. we’re definitely seeing it on the retail space and we’re seeing it a lot in the institutional space as well.

There’s, that’s where they still have a lot of appetite. and I was just gonna say, whereas in private equity. obviously it’s, sexier or whatever and, people really like it, but I think that a lot of firms are starting to find, and this is another interesting thing on the institutional level, I think a lot of institutions have built out their own private equity teams and they’re doing deals more directly where they don’t do that as much in private credit.

They tend to invest more through, through fund managers. So I think that’s a bit of a nuance as well. But I think it’s the logical first step for retail clients to get involved in. There are more products out there in the space, so it also gives them more selection, the ability to pick which managers they want to work with.

I think over time we’ll start seeing private equity [00:44:00] structures, evolve and become more popular.

Raphaëlle Gauthier-Grenier: I agree with you, Ross. And I think also private credit is easier to start with as there’s more cash flows, it behaves a little bit more like fixed income, something they know they will start returns coming in.

Liquidity is a little bit higher from the design and, from the underlying structure. So I think that’s a really good way in for advisors. And then they will add more sleeves to their portfolios. Because they have to get comfortable. They will start with something, they will feel their experiences like…

for a lot of advisors, it’s the first time they have products with monthly NAVs, like monthly evaluation or even some products for quarterly. So they have to get their head around that and if they want to redeem for clients that say, it can paid three to four months to get the cash back, and it’s not something you’re, they’re used to.

So I think they start with 1, 2, 3 products. It will get comfortable and then it will add a lot more.

Ross Neilson: Yeah. One quick thing to add as well is it will also have to, rely on some [00:45:00] changes internally with compliance. Because right now everything is bucketed into the alternative bucket. As I mentioned, it doesn’t matter if it’s venture capital or if it’s really conservative private credit.

So advisors are limited in the amounts they can put in. So if they have a couple of hedge funds that they’re using, they have to find that space. Even if it’s for a private credit vehicle. So I think that will evolve over time as well. Compliance, I is certainly looking at it right now, but I think it will take time for them to get comfortable with saying that, okay, this can actually fit into a fixed income bucket or this can fit into a traditional equity bucket that’s gonna take some time for people to get comfortable with.

Raphaëlle Gauthier-Grenier: And also on how, like they will test that asset allocation.

So let’s say they limit to a certain amount of the portfolio, but the markets are evolving and they can get out any day. So they have to find ways to follow compliance, but also in a way that it’s most suitable for those investments.

Pierre Daillie: To bring it back home. What is National Bank Investments doing in [00:46:00] this space?

How are you helping advisors and investors tap into private markets and what strategies or partnerships are you most excited about right now?

Raphaëlle Gauthier-Grenier: There’s lots to talk about. Very excited. It’s very exciting. so first, just to put a bit in context, so National Bank Investment is like the leading, open architecture, open architecture platform in Canada.

So what it means is that we do partner with the best managers in public and private markets. So it’s in our DNA to find the best managers, and we are really geared towards that. So it’s really the same approach for private investments. And we have two types of products. So the first one are pooled funds with multi managers, diversified exposures.

Why? We mean like it’s a very turnkey solution, very high quality and institutional style. So it’s really the same approach that we had with our pension funds for years that we are bringing for our advisors. It fits into a lot of our models. So very large [00:47:00] bases of investor, very diversified and very peace of mind.

And we have that special thing on those tools that are daily valuation so you can get in and out. So makes them very model friendly. but they are actually very, concentrated in private. It’s just by design, by the pools and how we made them that we can get to that, result. So these are very interesting.

We have one in private equity and one in real assets. Fully diversified. And then we have our new business that we’re, really working hard on it, and we just partnered with Apollo on that, on a fund. So it’s a new lineup of evergreen structures with only one manager. So strategies that we are very like convinced on, and we can bring one single manager in a evergreen format to our clients.

And we just launched the NBI Apollo Private Credit Fund. So it’s their flagship strategies in the US a very large cap, quality-focused, similar investment grade, even if it’s not investment grade per se, [00:48:00] but really same approach, institutional quality, and I would say even conservative approach because we don’t want our to put our clients in very high risk structures. We want to have a good experience and that those assets really fit in their portfolio and that clients can get to their goals. So that’s really our mindset and our role, is really to become a leader in that space. And this is really what we’re, working on.

Ross Neilson: We’re really excited to be entering the Canadian market. We’re doing it through partnerships like our partnership with National Bank. Again, our view is we’re not gonna come and launch a mutual fund company in Canada. We want to work with firms like National Bank that have great distribution, great structure and capabilities, and we focus on our asset management.

I always like to tell people that, Apollo differentiates itself by the fact that most of the transactions that we have in our funds, we own on our own balance sheet. So we always hope that, people understand that and that we’re fully aligned with our investors. I think that’s a big thing that we bring to the table.

[00:49:00] But we’re really excited about the Canadian market. We think that the Canadian market is, a very developed market. They’re more conservative, which really suits us really well. and we think that there’s a huge growth opportunity up here.

Raphaëlle Gauthier-Grenier: Yeah, and it’s it’s, something investor like.

You need to be careful about liquidity structure, leverage, but also the size of the manager, the track record, the history of the firms and the due diligence, like the level of investment, due diligence that is made on those deals. I think that’s really something they have to look for, when they sell like private equity products.

And I think we’re really, delivering that, with our solutions right now.

Pierre Daillie: Raphaëlle, Ross, thank you so much for your incredibly valuable time and your insight. This has been a, an incredible discussion, really in depth and granular about private markets.

Ross Neilson: No, thank you very much, Pierre. Appreciate it.

Thank you very [00:50:00] much.