Over the last two decades, state and local government pension funds significantly increased allocations to alternative investments (from nine percent in 2007 to 34 percent in 2022) while reducing exposure to more traditional asset classes like public equities and fixed income.
According to estimates from the Center for Retirement Research at Boston College, more than 80 percent of state and local government pension plans allocated 20 percent or more of their assets to alternative investments in 2022.
Now is the right time to consider including private debt as one of the alternative investments in your portfolio, explains Graham Banks, CFA, Senior Vice President for Morrison Financial. He leads the company’s loan origination and underwriting teams.
Morrison Financial is a Toronto-based non-bank lender formed in 1987. It has advanced over $1.6 billion in loans and is one of Canada’s longest-standing private finance firms.
The company’s primary source of private money is two limited partnership trust funds: the Morrison Financial Senior Mortgage Income Fund and Morrison Financial Junior Mortgage Income Fund (“the Funds”).
“The Funds invest in short-term loans for residential real estate projects in Ontario,” explains Graham.
“They provide excellent liquidity, attractive risk-adjusted fixed income returns, and returns virtually uncorrelated to investment instruments trading on the public markets. The funds have target returns of seven percent to ten percent and can be purchased in both registered and investment accounts.”
Partnership Trust Funds
As of December 2022, the current weighted average loan-to-value (LTV) ratio is 34 percent for the Senior Fund and 62 percent for the Junior Fund. Annual returns range from seven to eight percent for the Senior, and nine to ten percent for the Junior.
“They can be purchased within registered accounts such as a TFSA, RRSP or RRIF to provide the investor tax benefits in addition to historically strong returns,” explains Graham.
For those who will find themselves enjoying a peaceful day at the cottage while making investment decisions this summer, there are alternative options to boost your portfolio.
TEXT CHRIS OCCHIUZZI | PHOTOS ANDREW FEARMAN