Historically, real assets have been difficult for Canadian high-net-worth investors to access. Manulife Investment Management is helping to change all that.
“With protracted drawdowns in equity markets and fixed income investments, along with concerns over stretched valuations, increases in volatility, and prolonged low interest rates, advisors need innovative alternatives that may boost client portfolios.”
Low yields, high valuations, and increasing asset class correlations are making diversification difficult. To overcome these challenges, many investors are turning to real assets. However, access to these products has traditionally been limited to the world’s largest institutions.
Democratizing real assets
Manulife Real Asset Investment Fund gives the advisor community access to private real estate, infrastructure, timber, farmland, and other private assets, allowing them to offer high-net-worth clients an accessible, transparent solution to today’s market conditions.
As a one-stop investment in multiple, complementary real asset classes without capital calls, multi-year lockups, or the black box of underlying holdings1, the fund has the potential to enhance risk-adjusted returns, protect against inflation, and offer a stable income alternative to low bond yields.
“The income benefits that these assets can generate, whether that's leases from the real estate or the infrastructure assets, or commodity income from the farmland, can all provide a nice boost in the portfolio,” Menzer says.
A key benefit, he says, is a lower correlation to public equity and fixed income investments. “It’s not negative,” he says. “It’s still positively correlated, but it’s lower. There are diversification benefits, and when you look at your risk versus your return, the addition of private assets moves that efficient frontier up and to the left, enhancing risk-adjusted returns in the portfolio.”
“We’ve very much been tested in today’s environment, and real assets are doing what they were designed to do. Consequently, our product is doing what it’s designed to do.”
A bull’s eye on return targets
Manulife Real Asset Investment Fund has two investment components: one with private, real assets that give investors exposure to what’s driving today’s economy; and one with public market investments that mirror private asset exposures, while giving the fund critical liquidity and the flexibility to manage capital flows.
According to Menzer, a lot went into tempering the public versus private split.
“Analysts within our multi-asset solutions team conducted a significant amount of modelling on that, but we also went out and talked to advisors to get feedback on what would be most palatable. Targeting a long-term average of 30% public and 70% private really created a good balance between controlling the volatility of the overall product, focusing on hitting our returns targets, and providing enough cushion and flexibility on the liquidity so that we can handle redemptions and potential drawdowns.”
At the heart of the fund’s strategy are four key buckets that include real estate across Canada, the US, and Europe; a globally diversified timberland fund that offers a mixture of timber properties in North America, Brazil, and Australia; a mix of row and permanent crop farmlands; and infrastructure such as transportation, utilities, midstream energy distribution, and renewables like wind, solar, and data centres. Embedded within the transportation class are shipping, bulk containers, and ferry systems; outside the four main buckets, the fund also participates in opportunistic agricultural lending, as well as wind and solar lending.
Experienced in real assets management
With stocks ending their bull run and a recession looming, savvy investors are eyeing options that can help mitigate inflation risk and do not rely on intangibles. With $154 billion in private assets under management2, Manulife Investment Management is in good position to satisfy that desire as the world’s largest timberland investment manager3 and the second-largest agriculture investment manager4.
“Our organization is good at a lot of things,” says Menzer. “From a multi-asset framework, we not only leverage in-house expertise, but we also invest with big-name third-party managers. This helps us with manager diversification and asset-class diversification and gives us the ability to continue to deploy capital in an efficient and timely manner.”
A job for the professionals
For ultra-high-net-worth individuals who might want to go it alone in real asset management, Menzer says there’s a tremendous amount of legal, tax, and operational complexities involved, noting that “a lot of these funds that we invest in have $5- and $10-million minimums.”
And that’s just the beginning.
The investment must be vetted through legal and tax reviews which presents a class of headaches all their own for Canadians investing cross-border. There’s also capital queuing, making sure all the capital calls are met, and managing capital deployment schedules, plus staying on top of the cash flows that are coming in and out of these funds regularly.
“Manulife Investment Management navigates these specific issues with tax-efficient vehicles and customized structures,” says Menzer. “We have the expertise, and the infrastructure to manage all that.”
“The industry is changing,” Menzer says. “We focus on providing insights and innovative investment solutions to help advisors build customized portfolios similar to the largest pension plans out there so the average accredited investor can access the types of assets once reserved for big institutions.”
Learn more about Manulife Real Asset Investment Fund.
Sponsored by Manulife Investment Management, as of July 2022.
1 The Fund offers quarterly liquidity windows subject to a 5% fund-level gate each quarter and charges early redemption fees within the first year of purchase. Please read the Offering Memorandum for details. 2 AUM calculated on a fair value basis in Canadian dollars as of September 30, 2021. AUM includes $7.9 billion AUM adjustments driven by $4.7 billion non-discretionary general fund AUM and $3.2 billion external clients AUM. The methodologies used to compile the total assets under management are subject to change. 3 RISI Global Timberland Ownership and Investment Database as of June 30, 2020. 4 Manulife Investment Management’s agricultural investment group was ranked #2 out of the top 30 agriculture investors by AUM according to the Global AgInvesting Rankings and Trends Report 2019.
This communication is not and under no circumstances is to be construed as an invitation to make an investment in the Manulife Real Asset Investment Fund (the “Fund”), nor does it constitute a public offering to sell the securities of the Fund. The offering of units of the Fund is made pursuant to its Confidential Offering Memorandum only to those “accredited investors” in certain jurisdictions of Canada who meet certain eligibility and cannot be sold in Canada to the general public. The offering memorandum contains important information regarding the fund's investment objectives, strategies, restrictions, risks, fees, redemption limitations, liquidity and other matters of interest. There are no assurances that the stated investment objectives of the fund will be met.
Applications for investment in the Fund will only be considered on the terms set out in the Confidential Offering Memorandum, a copy of which can be obtained from us. Eligible investors should review the Confidential Offering Memorandum carefully before deciding to purchase units and should note that alternative investments can involve significant risks. The Fund is not guaranteed, its values may change frequently and past performance may not be repeated. The Fund is managed by Manulife Investment Management Limited. Manulife Investment Management is a trade name of Manulife Investment Management Limited.
Investing involves risks, including the potential loss of principal. Financial markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. These risks are magnified for investments made in emerging markets. Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a portfolio’s investments. The information provided does not take into account the suitability, investment objectives, financial situation, or particular needs of any specific person. You should consider the suitability of any type of investment for your circumstances and, if necessary, seek professional advice.
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