Private Capital Markets

risk level, illiquidity, etc. are all factors that securities regulators have purposively aimed to shield retail investor from, but have been more open for “accredited investors”, whose risk capacity/ tolerance and sophistication is generally considered higher and hence more suitable for private securities. Laws and the regulatory environment in Canada however are changing, and likely to provide increased ability for retail investors to access private market opportunities, but may also impose a higher level of accountability and responsibility among industry participants (i.e. wealth management firms).

There are other reasons why the average retail client portfolio generally does not have exposure to private market securities. Lack of sophistication, experience and education on the asset class, not only by the retail investor but also by his or her advisor (i.e. among retail wealth professionals), is generally true among private securities. This however, can be easily resolved through education, training and greater awareness of the benefits and risks of investing in private market securities.

Private securities as a group, often tend to be illiquid, or less liquid than public securities, and can also have attributes that present a higher level of individual security risk than many traditional public assets (but certainly not all, and often this is only a generalization). That said, the average retail investor generally has a lower risk capacity than a UHNW investor, and may also have a shorter investment time horizon for their investment portfolio, thereby necessitating the need for a higher amount of portfolio liquidity.

The universal goal of maximizing portfolio return for a given
level of risk capacity/tolerance and liquidity required, remains a
constant for all investors—retail, UHNW and institutional alike. As
the industry continues to evolve and regulatory restrictions change
in favour of expanded scope for eligible investor participation in
private securities, the benefits of this asset class will be more
broadly embraced among the retail demographic.

While changing retail client portfolios from the traditional mindset of 100% public security content, to include some proportion in private securities may not be suitable or prudent for all retail investors, for many there is invariably some reasonable allocation to private securities that may be suitable and beneficial from a longer term portfolio perspective.

Some of the most significant changes to the investment landscape over the coming decade will likely include the evolution of how private and alternative investments are utilized, and the wider incorporation of this asset class by retail investors. Organizations that look to champion this change and facilitate greater access, education, and retail investor support for how private securities are incorporated in portfolios, will help transform the retail segment of the industry, and promote the broader investment benefits that UHNW and institutional investors are experiencing with private securities today.

For more information contact:

Ray Sawicki rsawicki@mandevillepc.com

THIS AD PREPARED BY: RYAN EDWARDS
CLIENT: GRANT THORNTON
FILE NAME: AD RESIZE
AD #: GT-14-037

TRIM SIZE: 8. 5" X 5. 5"

COLOURS: 4 COLOUR

Regulatory reform, technology, corporate governance, globalization and increased competition in the financial services industry are creating profound challenges—and opportunities. In fact, many financial services organizations are experiencing an unprecedented level of reinvention and expansion. We can help you do the same.

Grant Thornton LLP is a leading national accounting firm, offering a full range of audit, tax and business advisory services. Our highly experienced financial services team has the insight and resources to help you meet the rapid-fire challenges your industry is facing—and come out on top.