In this podcast, Lorraine McGregor from Spirit West Management and Rob Wallis discuss the low number of businesses that are actually selling in North America, despite 70% of baby boomers business owners saying they want to sell within the next five years. They explore the reasons why many businesses do not sell, including the lack of understanding of how to play the M&A game and not being “sale ready.” They also delve into the importance of increasing a business’s valuation in order to attract buyers and the options available for business owners who are not happy with their valuation.

About the Guests – Lorraine McGregor

Lorraine founded Spirit West Management in 1990 and has worked with CEOs to help grow their businesses through effective partnerships, marketing, and sales strategies. In 1999, she returned to Canada and has worked with both US and Canadian clients. Together with leadership expert Rob McGregor, they provide growth strategies and leadership expertise, as well as guide business owners and their families through a process to decide the best course of action for their business. They also work on improving systems, profitability, market focus, and organizational effectiveness, and address conflict, family dynamics, and partnership problems. To read more, please visit the Spirit West Management website.

About the Host – Rob Wallis

Rob has provided senior financial planning and advice to VELA clients for over 15 years. He excels at working with entrepreneurial professionals and business owners to define their individual ecosystems and establish meaningful life and financial goals. He has specialized expertise in guiding healthcare professionals who are building multi-location, and specialist clinics. To read more, please visit the VELA team page.

The episode is also available on:

Read the transcript of the Polestar Podcast here.

Listen to the Polestar Podcast here.

Podcast Transcript

Rob Wallis:

Hello everyone. Welcome to The Polestar Podcast by VELA Wealth.  I am delighted to have Lorrain McGregor from Spirit West Management joining us today. We’re going to be talking about what to do with business valuations, especially if you’re not happy with them. Lorraine and I have been working together for several years, and we’ve shared lots of different clients and different experiences. What really is very interesting for me is learning about the options for people who are thinking about selling a business and how they get the best value for their company and whether is it even possible to sell a business at all. So, before we jump into the content, welcome Lorraine. Please say a few words about yourself.

Lorraine McGregor:

Thank you, Rob, for having me on your podcast. I’m so glad that you’re tackling the topic of valuation. We, at Spirit West Management, have been helping owners grow their businesses to the next level and learn how to become sale ready and increase their valuation for about the last 20 years. It’s very difficult to learn how to play the valuation M&A (Merges and Acquisitions) game from the outside. So, we have taken a lot of time to understand what goes on inside dealmaking and translate it into language and actions that business owners can take advantage of. So, we love the opportunity to be able to talk about it.

Rob Wallis:

Well, before we jump in, I’m always fascinated to hear the stats about businesses that are for sale in Canada and indeed the world. And especially in the context of the greatest wealth transfer in history is taking place right now, and a lot of baby boomers have businesses. So, if you could let us all know what those stats are that would be awesome.

Lorraine McGregor:

Well, thanks for giving me the opportunity to describe this because these numbers aren’t apparent. These numbers have been tracked since 2008. So, across North America, Canada, and the US there are three and a half million businesses owned by boomers. People over 55, 60 I guess now, and you would think since there’s going to be this great wealth transfer that those companies would be on their way to sell. Since 2008 these companies have been surveyed by many different organizations and at least 70% reliably every single year say they will sell within the next 5 years. So, we would expect this to happen and in fact, many books and predictors have said this is what’s going to happen, but the stats of the number of companies that actually sell tell a very different story. So, Capital IQ and several other organizations track how many businesses actually sell each year. If you know if it was 70% that took the time to become ready to sell, we’d be seeing hundreds of thousands of companies sell each year, but in fact, the numbers stay steady. From 2008 to even 2022 there are roughly three to four thousand companies each year that actually sell. Way back when we started to see this trend we thought about why so few companies are actually selling and we got to the bottom of understanding that problem and we designed everything that we do to help our clients know how to play the M&A game because there are some secrets in how they do things that totally stop most business owners from finding buyers.

Rob Wallis:

Okay, so three and a half million companies (owned by boomers), and 70% of those wanting to sell within the next five years but there are only three and a half thousand transactions a year in North America.

Lorraine McGregor:

Right, so 70% is 2.8 million and in Canada will just take 10% of that, so 280,000 predicted they’d sell. In every year since 2008 we should see upwards of 100,000 sales and what we see in Canada has more like 1,500 to 2,000 and in the US more like 4,000.

Rob Wallis:

Staggering!

Lorraine McGregor:

Staggering, yes. So, if you’re one of the 90% of owners that never find a buyer for your business, that means you can’t actualize a return on investment. You can’t sell the business and liquidate all that you’ve built up, and if you’ve been counting on that wealth to power your retirement or your next act in life this can be a hugely rude awakening right at the point in your life when you kind of run out of energy to re-engage and reinvent.

Rob Wallis:

So, what kind of capital is out there actually chasing these businesses?

Lorraine McGregor:

Well, this is a confusing thing. I mean all the headlines are about how much wealth is searching for businesses to acquire. In fact, every year it gets a bit bigger, but the current number on the table is between eight and ten trillion dollars looking to acquire businesses. So, you look at it and you think, well, there’s ten trillion looking for businesses, but 90% are never going to sell. Well, how do you make sense of that? And that conundrum is exactly the problem that we solve for owners. There’s high demand for certain types of businesses that have been made sale ready. So, those businesses will get multiple offers or just find the ideal buyer, but you only need one. And then the rest of them will never find those buyers and there’s a low demand for companies that have not been made sale ready and that is an excruciatingly difficult situation for owners to come to terms with.

Rob Wallis:

So, what are some of the key reasons why businesses are not sale-ready?

Lorraine McGregor:

Well, they’ve not been told, not been educated, not been prepared over the course of their lifetime and their business to become sale ready unless they were in a tech business. Because in tech business they get investors early on and every single one of them is lecturing you constantly about how they’re going to get a return on investment when the exit is going to happen, how will the investor pull their money into the business, and etc. So, owners are always thinking about that. But if you don’t have a tech business, you’re not surrounded by an ecosystem of advisors saying here are the things that you need to do to ensure that an ideal buyer or an investor is going to be interested in liquidating your position. Instead, you are your sole investor, or maybe you with your partners, and if you’re not getting that kind of advice early on, you come to a certain point in your life and you want to move on and now discover that you can’t, and you’re not prepared in an easily curable way to get that return on investment.

Rob Wallis:

Got it. So, how does the opportunity to sell a business change depending on the sector? You mentioned tech, but there obviously would be a small percentage of what’s transacted each year. What about other industries?

Lorraine McGregor:

There’s interest in every single industry out there by acquirers. The real reason they want to make an acquisition is that they need to solve their own business strategy problems. So, if there’s another company, that needs to solve a particular growth problem, they will need to get into a new market, they need new technology to complete the picture for their customers, they need to acquire expertise, they want to get into a new geographic area and to build it themselves would take too long. So, making an acquisition solves a certain strategic problem.

Now, other companies such as competitive companies buy 90% of all the acquisitions. The other type of buyer buys probably 10 to 12% and those are private equity buyers and they’re buying growth in the future cash flow growth, so they’re not acquiring what you’ve done, they’re acquiring what you’re going to do, and you’re already on the way to proving that your business is growing through at least 30% year over year and is producing growth and cash flow probably both in gross margin at the same time. Those types of companies are super interested in it.

Rob Wallis:

Okay, so we have an unprepared seller of a business and they’ve got a valuation of their company, and let’s say it’s come as a shock to them because they thought the company was worth more than it was. What are their options now?

Lorraine McGregor:

Well, the first step we always say is to handle reality. Yes, it’s very painful, demoralizing, and embarrassing to get a valuation that is less than what you thought it should be worth. Because you’re looking at all that you’ve built, and you’re valuing all of that, whereas the evaluator and the people, the buyers that they represent, are valuing the future, and so that’s where we have a disconnect. By handling reality, you have to stand in the shoes of your ideal buyer and ask yourself, “What do I see that proves to me that if I acquire this company I’m going to get more growth in the future?” – so that’s the first step. Being able to look at your business dispassionately from the buyer’s perspective helps you see what the opportunities are to cure some of the things that get in the way of growth.

The second thing that you need to do after you’ve handled reality is to be prepared to make some changes in how you run your business so that growth is possible and so that you, as the owner, are not materially needed inside the business in some functional role. Solving those three things that perspective, the growth problem, and making sure that you’re not in a key position, meaning you’ll have to work for the new owner if you do sell the business, are the first places we look for helping a business owner improve valuation and then from there we look at profitability and growth prospects. And it sounds like an enormous to-do list, but sometimes you just want another two million and you need to become sale ready. So, the project to make these adjustments could be small, or it could be much bigger depending on your level of ambition and your level of risk talent.

Rob Wallis:

Interesting. So, how long does it take typically to turn a business around to achieve what the owner wants?

Lorraine McGregor:

Well, first of all, let’s tackle where the owner is now. Of course, the owner probably has a successful business, and for all intents and purposes it makes money, it’s a great place to work, great employees, great customers. It’s just the owner has come to a point in time when for whatever reason they want a return on investment, and I think it’s important to acknowledge all that’s been built. But to be able to sell it to somebody who can easily step into the owner’s shoes and transition the business so that it continues on its growth trajectory that takes a bit longer for two reasons. One is the evidence – the proof that the business is growing has to be in the financial statement. So it’s going to take 6 to 12 months, maybe even 18 months for changes to be seen on the bottom line, at the net profit margin level, at the gross margin level, and at the revenue level – thinking about the income statement. The second thing is the amount of change needed. Might just be a few adjustments or it might require installing someone to replace you as the functional role, it might be cleaning up how you collect your financial data, and it might be entering a new market, or exploring introducing a new product. So, that can take 12 months to two years.

The way that we do things, we aim at the ideal buyer early on in the process, so today you might be part way through implementing the plan to make the company sale ready but because we’ve signaled your ideal buyer that you’re probably coming onto the market, you could probably get a deal much earlier in one to two years and still be on your growth trajectory. As we said, there’s ten trillion in wealth looking for businesses, and they’re all looking at the same few companies that are willing to take the journey to make the company sell-ready. So, once you pop up on the radar you get a lot more interest. You could have a deal, but not be finished your growth process.

Rob Wallis:

So, in terms of popping up on the radar, let’s assume someone got an evaluation that they are happy with, and they want to go to market. How can that seller access these trillions of dollars of capital that’s out there looking for companies like theirs?

Lorraine McGregor:

OK, well first let’s make a distinction. Just because someone has said your company is worth ten million, or five million, or fifty million doesn’t mean a buyer wants to pay that. Having a valuation is no guarantee that you’re going to find a buyer. Secondly, another issue that’s super important is understanding how the game is played. There are two types of groups that sell or represent the selling of a business. The first is Merges and Acquisitions (M&A) Advisor and the second is a business broker. The M&A Advisor gets paid after the transaction takes place, meaning they get a success fee, some percentage of the sale price and they only want to work with those businesses they know they have buyers for. So, you have to be sale ready, and you have to have solved what their buyers are looking for strategically or financially. And if they can see that in you, how you talk about the business, the questions you answer about how the business makes money and loses money, then they might be interested. But for every hundred businesses they look at, they may only take on five or six maybe seven clients in a given. So, you might be given an evaluation but not be chosen to be represented by this company. And this is happening all the time, so you think “oh, but they told me it was worth X but they didn’t take me on as a client. So now what do I do? And they go shopping for another M&A Advisor or maybe they talk to a business broker and the business broker works quite differently.

Rob Wallis:

Sorry to cut in there. Just before we go into the business broker. What are the reasons an M&A Advisor wouldn’t take somebody even though they’ve given an evaluation?

Lorraine McGregor:

Well, I like to think of it as a consignment shop. A consignment shop takes used goods and puts them on the rack and in the window in hopes that somebody will see them and walk in and buy them. They don’t want to have goods on the shelf that isn’t saleable. Because M&A Advisors get paid after the company is sold and they put in a lot of effort to help the company present itself and do a search to find that ideal buyer, they’ve invested a huge amount and they want to be paid, so they’re playing the probability game. What’s the likelihood we’re going to find a buyer for this company, and if the lower it is then the more reluctant they are to take them on?

Rob Wallis:

As a claim, got it. Then, what about the business broker?

Lorraine McGregor:

A business broker maintains a website and displays one of the businesses that they represent for sale, but they most often take a retainer for doing that. So, every month you’re going to pay them a certain amount of privilege of being on their website, and sometimes they actively market your business, but they’re going to help you understand why your valuation is X and present your business in the best possible light. They’re going to take a percentage much smaller than the M&A Advisor at the end of the deal, but you’re going to pay that upfront cost so that they’re compensated for all the work in helping you get ready to go to market. So, you might get a valuation from them of five million, but you have to make a bunch of changes. Maybe you’ll get to six million. The M&A Advisor will tell you you’re worth five or ten million and sorry we’re not going to work with you. Neither group is going to tell you why or what to do to make the changes that would elevate your valuation, which is only one part of the formula. The other part of the formula is going to make you attractive to your ideal buyer, and you’ve got to solve for both. That’s why it’s so important to recognize that if your accounting firm says, “we’ll do an evaluation for you and you’re worth seven, we’ll stamp it, put it on our letterhead.” – that doesn’t mean that you’re going to find a buyer that’s going to give you seven million dollars. There are lots of companies that get valuations and will never find a buyer because they’re not sale ready, and the M&A Advisor needs sale-ready companies. The business broker tries to help you become more sale ready, but they can only sell what is of value to the buyer and this is a key point. Value is in the eyes of the buyer. So as an owner, you have to recognize that and stand in their shoes in order to detach from your disappointment that you didn’t get the valuation you wanted. And yes, it is your baby, you want people to appreciate and acknowledge all that you’ve done to build this up. And when people don’t give you the number that you’ve become attached to it’s crushing.

Rob Wallis:

So, is it ever too late to do anything about this?

Lorraine McGregor:

It is always possible to turn a business into a sale-ready company, but you need to consider a few prerequisites. One – you still need to have the ambition to increase the valuation of your business. Two – you have to be willing to make the changes and adjustments in how you run things so that it becomes sale ready. Three – I think you have to examine your tolerance for risk. Making a few adjustments, spending another year in the business, and writing about the next economic cycle. Do you have the fortitude to go through that? Some people don’t. So, I think it’s a personal decision about how much energy you’re willing to put into something or can put into something so that it can become sale ready. And of course, just being sale ready doesn’t guarantee you’re going to get a buyer, because as we saw at the start of this podcast, only a few thousand companies sell each year. So, your ambition has to drive you through the ups and downs of playing the M&A game, and it’s quite the rollercoaster sometimes.

Rob Wallis:

So, turning back to the baby boomers and the anticipated transactions over the next 10 to 20 years, there are instances where people cannot find buyers and end up going to shut their companies down completely.

Lorraine McGregor:

I think that’s happening all across North America. As owners age and they want a smoother life for themselves, their revenues are flat, maybe key employees are starting to leave because they don’t see the company growing and there are other opportunities out there. I think that companies are closing all the time and buyers are wanting companies that are more modernized, more agile, that have automated, that have a higher quality of revenue, that have transitioned from just providing services to adding more value, creating recurring revenue, creating other sources and ways of being of service to their target markets. So, if a company hasn’t evolved it kind of runs out of steam at some point.

Rob Wallis:

So, it just closes down and that’s that?

Lorraine McGregor:

Yes, that’s happening everywhere.

Rob Wallis:

Any stats on that?

Lorraine McGregor:

I do not have those stats. It’s mixed up with bankruptcies, so their stats on bankruptcies, but not companies that have closed in any easy-to-grab in a way.

Rob Wallis:

Got it. So, coming back to the not happy with my business valuation. What do I do? What would be the key advice that you would give that person?

Lorraine McGregor:

Well, the key advice is to talk to someone like us who can explain what’s going on behind that number. Why is that number as it is deconstructing what red flags created the lower valuation and also with green lights? What good things? What X factors have built the valuation up? In light of who the potentially ideal buyer is. So, that starts the process of helping the owner understand the dynamics of the marketplace so that they begin to see their business in a way that a buyer would and start to go thinking “Okay, if I improve profitability, or if I went into this market, or if I had someone who was running the area that I run and we offered some new data or a new service to our customers to help them solve a problem, we’d suddenly be of interest to a buyer”, and when we start to have that conversation what I notice is owners start to get excited because they may be run out of ideas on how to grow to the next level. So, we inject some enthusiasm, some potential, some hope tempered with how much risk and ambition the owner has, and they can see an endpoint, they can see how the games played, how they get from a valuation of ten million today to the fifteen million they actually want. And now they see all the steps in between. So, this is what we do we work with an owner and if they are unhappy with the current circumstance, we create a plan of action. It’s great to know how come it is the way it is, but now how do I fix that? And since we’ve been doing this kind of work for the last 20 years, we’ve mapped out a whole lot of processes and the inside information on this is every business, no matter whether it’s a tax or traditional has the same issues that make them unsaleable. So, we have processes that are designed to solve problems and it doesn’t matter what kind of business you have. They’re the same log-jams, the same frustrations, and the same way of organizing things that make it difficult for someone else to step in and take over.

Rob Wallis:

So, with everything in our world and the conversations we have with clients this occurs to me as being quite similar to tax planning, for example, or financial planning in general. It takes many years to put the right programs in place to get the desired outcome and everything has to work together to produce a really good outcome for somebody in the future, and it’s ultimately patience and taking their advice.

Lorraine McGregor:

Well, very well said – patience and taking advice, and taking action. We’re the kind of company that doesn’t let you just run away with the salability blueprint. We didn’t want to sit down and break it down into projects because as we all know we all have full-time jobs and changing your organization on top of the work of running your functional area in the business, it’s like having two full-time jobs. So, the project management of organizational change projects is where we sell. So, that is where you start to see results and that’s crucial. No action, no result.

Rob Wallis:

Got it.

Lorraine McGregor:

I think the other thing that you said that I really liked is that we tend to hope that there will be a plan, that our lifestyle business will turn into a saleable asset at some time when we’re ready to sell. But the truth is that buyers are looking when it suits them, not when owners turn a certain age, not if they’ve planned or not planned for that kind of outcome. So, to count your company as an asset before you’ve made it sale-ready is a recipe for disaster. And as you know, for example, VELA is a wealth management company, and helping them understand that this company is not going to give a better return unless they make it sale ready, is kind of crucial to that planning process.

Rob Wallis:

So, sounds like lots of preemptive work needs to be done. Thank you for sharing that, Lorraine.

Just before we wrap up, could you share a little bit more about a cool project you’ve got coming up that helps business owners find answers to the question that we posed today, which is what to do with an evaluation that they’re not happy with?

Lorraine McGregor:

Well, we are about to launch something that we call the Scalable Saleable Business Formula, that’s scalablesaleablebusiness.com. This is a program where we will help you in a five-day period understand why you have the valuation you do, and what things you can change about it so that you can actually get the valuation you really want. It’s a report that gives you a deep dive into what to do to make the change happen. We also have a longer program where we can train one of your people to make those changes in the business. So, we won’t just hand you the salability blueprint will show one of your top team members or you how to go and implement those changes.

Rob Wallis:

Cool, it sounds very exciting!

Lorraine McGregor:

It is! It’s the first time that we’ve offered this on a much larger scale. We generally work with five or six companies at a time, and with this program, we’ll now be able to work with a lot more. And get the word out that if you really want in return on investment from all that you’ve built in your business, now it’s the time to do it, and here’s the plan to go out and play the M&A game to win.

Rob Wallis:

Great! Thanks, Lorraine. Great to have you on today and all the best for the new project.

Lorraine McGregor:

Thank you, Rob. I really appreciate the time and attention. Great questions. Thank you.

In this podcast, Som Seif, a prominent figure in the Canadian financial services industry, discusses his background and journey to success with Jason Boudreau. He shares his experience immigrating to Canada as a child, his initial aspirations to become an architect, and his path to discover his true passion.

About the Guest – Som Seif

CEO of Purpose Inc.
CEO of Purpose Unlimited
Som Seif is the Founder and Chief Executive Officer of Purpose, which he formed following the sale of Claymore Investments to BlackRock Inc. in March 2012 and the Co-Founder of WealthSimple Technologies Inc. Prior to Claymore Investments, Som was an investment banker with RBC Capital Markets. He has a strong commitment to community and is currently a member of the AGO Foundation Board, Next Canada Board, and UofT Pre-Campaign Committee and Mechanical and Industrial Engineering Advisory Committee.

About the Host – Jason Boudreau

Jason has built VELA Wealth into an established life and estate planning firm, guiding families as they make meaningful choices at the intersection of life and wealth. Jason’s areas of expertise include intergenerational wealth transfer and estate planning with a focus on advanced insurance-based solutions that incorporate philanthropy and legacy planning. Leveraging these specialties, Jason brings a fresh perspective and outside-the-box thinking to the strategic planning process. To read more, please visit the VELA team page.

The episode is also available on:

Read the transcript of the Polestar Podcast here.

Listen to the Polestar Podcast here.

Podcast Transcript

Jason Boudreau:

Welcome, everybody to the Polestar Podcast by VELA Wealth. We are honored and excited to have Som Seif – entrepreneur, extraordinaire and well-known guy in the financial services industry in Canada. Looking forward to having a great dialogue with him. Welcome Som, thank you for being here.

Som Seif:

Well, thanks for having me, Jason.

Jason Boudreau:

So normally these podcasts go as a nice open conversation, but one of the things I was hoping we could do today is get a bit of background on you. I want to understand where you came from, where your family came from and how you ended up in Canada.  I love sharing the entrepreneurial journey but also interested to know how someone’s family life originated in Canada. So, why don’t we start the story and then dial up from there and then we’ll move it ahead.

Som Seif:

Sure. I think that a large part of my actual background story is a large part of the character of who I am, as I’d say most people are.  My family immigrated to Canada when I was three from Iran, just around the time of the Iranian Revolution. As we fast forward to the world that we’re in today there are a lot of correlations to that time, of course, in a different way and I think it’s an interesting time to be reflective of the last 40-plus years in the world, in the Middle East and of course, in Iran. My family moved to Canada, and it’s an interesting story actually. I asked my parents about a decade ago what it was that made them come to Canada. And it’s an interesting story because my father was studying for his master’s degree in England. I was born in England. We moved back to Iran, and he originally wanted to stay in England and his professor told him, “it would be stupid for you to stay here. You’re a Middle Eastern man and we are in the 70s in the UK. This is not a progressive society for someone like yourself.  You should go to a country that is more welcoming–a country such as Canada” and so that led to him applying to do his PHD at York University and coming to Toronto, Canada. We immigrated a year after that, in 1980, and I’ll tell you, it was one of the greatest decisions my family ever made, but most importantly, one of the most important decisions in my life that I didn’t make because that single decision changed the probability of success for me and my family by 100-times.  I’m a big probability guy. I’m a math guy and I look at life based on very, very specific factors. If I think about where I’d be if we hadn’t made that move, if we lived in Iran versus where I am today, would be in the top quartile of opportunity in my life relative to anything else. It was really powerful to grow up in Toronto.

When I was growing up, I always wanted to be an architect. It was my dream, and you know the reason? I have a very creative mindset. I loved the idea of building and designing, and it was something that applied a lot. I mean basically, from the age of eight I had always had this focus and it was interesting because when I had to make a decision about where to apply to go to school, I went and spoke to a couple of well-known architects in the Toronto Area and they all said to me don’t do it. It’s not going to be the job that I think it is and they all said that I won’t make any money and I didn’t grow up with anything.

My family provided extremely well for me and I’m very proud of that, but I always had this great ambition of making lots of money. It was actually the thing that really drove me. At least that’s what I thought. So, that led me to question becoming an architect. So, instead I went into Engineering at the University of Toronto. Very shortly thereafter, I made the decision to pivot to more of a business path. I went to work at RBC Investment banking in 1999, just in time for the tech bubble. It was one of the most exciting, crazy nine months of my career. I did more in the first nine months of my career than I did for the next two years. Frankly, it was quite amazing, but it was an unbelievable experience for the next number of years. I worked at RBC for six years and really applied myself. Then, I just started to ask myself, whether this was what I wanted to do? I remember the big moment. I was 25 years old, and money was one of my priorities at that point. I was starting to make really good money for a young kid, and I remember coming home one night at two in the morning, which was the hours I was normally working…

Jason Boudreau:

Investment bankers hours, right?

Som Seif:

Right.  I sat on my bed, and I said to myself “I’m not happy”. It’s not that I wasn’t enjoying what I was doing. It was that I wasn’t happy because I had pursued all of this with the singular goal of making money. And now I was making some money and I was on the path to making lots of money and I didn’t feel like that was the right goal. I did a lot of soul searching. I had to step back and say “Ok, what is it that I really enjoy?”. I still enjoyed waking up Monday morning and jumping to work and doing the things I was doing and what I realized was the thing that really made me happy was the thing that made me most excited. It was seeing my ideas progress, seeing things that really materialize and being a part of progress in a really meaningful way. And if I actually go back to what I loved about being an architect, it was the idea of seeing your efforts result in something that you actually physically touch and see. This was appealing to me. So, I had to step back and think about what I really wanted. Then I needed to apply myself in a way that was going to allow me to see my ideas flourish. I realized I wanted to build something. So, I sort of decided I’m going to leave at some point. I decided that if I’m still in this seat at the age of 30, I’m going to walk in on my birthday and I’m going to resign. And that gave me a date and I had to solve this problem of what I was going to do next.

Anyways, before the age of 30, that day came. It came at the age of 28, when I decided to break off and start my first company. I started a company called Claymore. At the time I had no idea what I was doing, but I had a really strong mental model and vision about how to build a better asset management firm. I advised a number of firms over the last number of years and got into what was happening in the industry really deeply. So, I believed there was an opportunity, and I built Claymore over the next seven years to become one of the most important financial asset management firms in the Canadian marketplace. It really changed the way the industry looked at asset management, specifically about fees, transparency, quality of investment strategy, and all the rest of it. I think we did a really cool thing, but I had a partner and the partner wanted to exit, so we ended up selling the company to BlackRock in 2012 and that gave me another moment to step back. I was 35 years old, and I had to ask myself what I wanted to do next? So, I decided that I wanted to do it again, but I had a bigger vision for the industry including asset management, wealth management and around financial services and banking. I went back to do it again. I started Purpose a year later and I also co-founded a firm called Wealthsimple We’ve been effectively executing over the last nine years across multiple areas of financial services trying to really drive innovation on behalf of Canadians within the industry. I’m really proud of what we’ve been able to do over the last little while.

Jason Boudreau:

Som, thank you for sharing. I learned a lot about you! I thought I knew quite a bit about you, but I really appreciate that background on your story and I know a lot of Canadians share a similar story, where they immigrated here at some point and really made something of being a Canadian and then the next generation, like you have recognized that and taken it to a whole other level. It’s just always really neat to hear that. So, I appreciate you sharing it.

Som Seif:

It’s actually quite amazing. I think of myself as someone who’s comfortable taking risks as an entrepreneur, but I’ve really gone through this journey of thinking about those who, either by their own will or, of course, through being forced to go away from the world that they know, friends that they grew up or their family, and move to a brand-new country, often times not able to speak the language or don’t know the culture and don’t know anybody. And they have to integrate into that society, build a life – that to me is risk. And I’m so amazed by this journey that people go through, and what they do, and, of course, Canada is an amazing destination for immigration for people around the world. Well, I’m encouraged, and I’m always inspired by it. I hope that Canada continues to really drive to be the best place in the world, to drive immigration because on behalf of those individuals it’s about creating an environment that only helps our country in the long-term. It also helps those individuals really be a part of a society in a meaningful way.

Jason Boudreau:

Totally, it is so important for Canada’s future to have strong immigration. I remember listening to Darrell Bricker’s book last year called “Next” and he talks a lot about the fact that without immigration Canada has basically a net zero new job growth and we need people to come here to help Canada grow and continue to be competitive globally. So not only is there the opportunity, but there’s almost a necessity for us as a country to welcome immigrants and their skill sets.

Som Seif:

I agree with that, and I actually think that it’s not only the future that is critical, but actually we don’t have to look much further than what we’ve gone through in the last 23 years. One of my theses around this is that if you look at the US, the US has been winning economically by driving a really strong strategy around IP ownership. If you think about the history of productivity, it was always around, call it physical manufacturing, economic growth and over the last 20 years we’ve seen such great progress on intellectual property and intellectual capital growth and the US has been winning that game against the players around the world. I’ve tried to deeply understand how Canada has been able to maintain a level of growth given that we don’t have the same strategy on the IP side. In fact, we’ve actually had a lot of our IP taken by the US in many ways, but I would say I think immigration has been one of the key driving forces for us being able to keep up with the economic development and growth that the US has been able to achieve. So, I think this is one of our strengths and I think it’s critical for us unless we do have to get our IP strategies right. We also have to continue to drive immigration for demographic reasons obviously, and also just for economic development and growth.

Jason Boudreau:

No doubt. I totally agree with that. One of the questions that I wanted to ask you is about your journey with Claymore and then selling that and then obviously starting Purpose. You’ve sort of alluded to it a little bit when you said that Purpose is almost a second chance in the same industry, that you took what you learned from Claymore and take it to the next level where you’re at now. Would you do anything differently if you went back again? Let’s say on the Purpose side, would you do anything differently in the past than you’re doing right now?

Som Seif:

So, one of my fundamental beliefs is that we shouldn’t have regrets in life and I actually don’t. Especially when it comes to business. Every decision that I’ve made in history, right or wrong, has been for reasons that were in the moment, and I think it’s important to go back and reflect on the decisions and whether or not you made good decisions or poor decisions.

I do that as often as I can. So, that I can learn from that, but I don’t actually ever look back and say “Oh, I wish I’d done that”. I’ve done that and I think having regret in your life is having an anchor. So, I’ve always believed in that and when I look at it, I’m very proud of what we’ve been able to accomplish with Purpose, but I wouldn’t change a thing because I think where we are today is a really good place. I think where we’re going is really exciting and really, what I hope is that every decision that I’ve made that has been a poor decision over the years will help me make a better decision in the future. I think that’s really the way I try to apply that thinking, so I don’t think I’d do anything differently. I think the only thing that I actually regret, was missed opportunity with my interactions with my wife and kids rather than on the business side.

Jason Boudreau:

Yes. I hear you. Well, let’s pull on that family thread a little bit because I know you’ve got a big family. You have four, right?

Som Seif:

Yes, that’s right.

Jason Boudreau:

That’s crazy. I mean I’ve got three and that’s crazy as it is, although I know my wife would love to have another one. Tell me about the background of how you guys decided to build such a big family.

Som Seif:

Well, I grew up in a very loving home. I’ve thought a lot about my upbringing, my parents were wonderful individuals who showed me love every day, very highly demanding but a lot of support, which is a very important thing in life. I also had a wonderful brother and older brother and then we had the benefit of my cousin who was my brother’s age living with us and so we grew up in this really interesting dynamic. My mum’s twin sister lived with us, so I had like two moms, two siblings and my dad, so our house was full. It was always something that made me feel joy. So, when my wife and I, who I’ve been with since we were teenagers, were planning our lives, we didn’t really plan at all. We both really enjoy a full house, we enjoy a full life, and we love kids and frankly, to your point, I would love to have many more.

We have four and we’re really happy with that, but every single time I see a baby, I always think that it would be great to have another one and they’re wonderful. My life has changed with them. I used to work non-stop most of my career and then we had our first child and I’ll tell you – your personal perspective changes you. All of a sudden, you become accountable to somebody else, you have a different perspective on priorities and what’s important. It’s been amazing, but I will say that even with that, it took the pandemic to open my eyes up to the importance of being more present regularly. I think all of us have taken the pandemic to teach us really important tricks about life and business, but one of the things I think it taught us is the importance of being present and slowing down. I think that’s been the trick that I’ve been learning really, really, deeply and it’s been exciting to build my new life, structured around my family, around the business, around the way that I want to still work at a highly competitive level. I want to accomplish amazing things, but at the same time balancing much more of the presence and time that I want to be with my family and my kids.

Jason Boudreau:

Yes, that also resonates with me. Just recently, I was saying the same thing to somebody that I was at more family dinners in the last two to three years that I have been in the past 12 years. It’s like one of those things where your family is your priority. And then at the same time it’s the easiest to take for granted, and it’s one of those things where the pandemic just kind of hit you square in the face and showed you your priority, right? And I’m very grateful for that happening. To your point, I’ve been totally rebuilding the way I do life and business since then to make sure that presence is there in my life with my family as much as humanly possible.

Som Seif:

I think that’s great, and you said the word “grateful”. I think it’s an extremely important word in our lives that we all have to make sure to implement in our day-to-day routines – what we’re grateful for. What I think about life in general, the thing that drives me is that I want to get to a stage where I don’t want anything. I think we always get all these cycles where you want this, or I wish for that. I had that and I think one of the things I’ve been trying to learn a lot more about is being grateful for what I actually have and reflecting a lot on the life that surrounds you today. To me that is very deeply important to have happiness in life in the long run. So, I think this is a really important thing and to your point around dinner – I used to never be home during the week for dinners and in my first business with Claymore I never used to be around even on the weekends, frankly. When I started Purpose, I made a certain set of rules around being home on weekends. I didn’t work on weekends, I made that a set discipline, but I still was Monday to Friday pretty much never home, I’d be at the office until 7:30pm or 8pm or later and I would rush home to tuck the kids in and give them a kiss and that would be the night. And during the pandemic we spent every night together for dinner and I have made that now a rule that I want to be home four nights during the week as well as the weekends having dinner with my kids. And even if that means I’m going to do a call after dinner or whatever, it is that important thing of not being absent for what I think is the most relevant period of my kid’s life in just that family time of being around the table, debriefing on your day and just being there.

Jason Boudreau:

What are their age ranges?

Som Seif:

So, our youngest boy is just about to turn 7 and then we’ve got three girls that are 9, 12 and just about to turn 14. So, it’s a wonderful age. I’m sure it is the same with your kids, where the baby is not a baby anymore and is not yet a teenager in a meaningful crazy way and we’re just having such a blast with them. They’re the other personalities. They’re fun to be around and they’re funny, really funny.

Jason Boudreau:

Yes, totally. We have two boys and the youngest girl who is turning 7 on December 27th. She’s so confident and getting a little sassy, sort of chuckle. It’s fun to watch and just see their expressions and the neatest thing is we just got the report cards from school and all their teachers said how much they love having them in the class, how great they are, how much they participate and they’re so inclusive. So, all these values that we’re trying to instill in them are really starting to show up. I think that’s one of the coolest things for me as a parent, and for Carissa too. So, it’s neat to hear that’s happening for you as well as, especially with the older ones. And obviously, as they get older, it’s probably only going to show up more and more.

Som Seif:

I think that’s exactly the case. One of the key beliefs I have that I live my life is this idea that you are the average of the five people you spend the most time with. It’s one of my favorite principles in life and you can apply it in so many ways.

Jason Boudreau:

It’s totally.

Som Seif:

To your point being a parent specifically is a very stressful job, especially for people like you and I that attack our jobs, we attack our lives with discipline with focus, and when we don’t know something, we learn it and then you get sort of thrown into the deep end with having kids, which is sort of like… I’ve never done this before.

Jason Boudreau:

Figure it out, yeah?

Som Seif:

…and learning as we go. The only experience I have is watching myself growing up with my parents. You are constantly asking yourself if I’m good? Am I going to be a good parent? Am I going to do the right things? Are my kids going to be okay? Am I teaching them properly? Now people talk a lot about values and they teach their values. To me, this is a really important principle. Your values are being exposed to them every day, you are exposed to them every single day, and so if you’re a good person, if you’re the type of person who believes in the right things and acts in the right way, treats others people with respect, grateful for the things you have, then your kids are going to learn that because they’re seeing you every day, they’re watching you, so they’re learning from you. I believe that for the first 12 years of their lives it’s about you and your spouse. After that it becomes about their friends and who they spend the most time with, and those people are the people who help them grow up to the next level of maturity. So, there’s only so much we can do up to that stage. But I do think that presenting a set of values to them every day…  and it’s not about what you say to them, it’s what you do. I’d say it’s the same in your life with your team at work, it’s the same with your friends, it’s the same with everything that you expose yourself to and it’s so critical that you see that. It brings to the concept that if you want to be great, hang out with people that are great. If you want to learn how to play guitar go and join a guitar club, you want to do really smart things around math go join a math club. The people you hang out with are the people that are going to influence you to learn the skills and do the things you’re going to do and the characters that you want to ultimately develop.

Jason Boudreau:

Wise words! I just wanted to pull a little bit of this sort of gratitude and give back a little bit. One of the things I love talking with entrepreneurs about is their value set around being a contributor, giving back and it’s one thing obviously for us to build businesses and employ people. But then there’s this whole extension that goes beyond that – into the community. I’m just curious to get your thoughts or your philosophy around philanthropy. How do you weave that into what you’re up to as an entrepreneur, as a family man, as a person? Where do you stand on that thing today and then do you have a vision for it for the future?

Som Seif:

It is a really important thing in my life. Going back to my upbringing as being important, I’ve been involved both with my time and my energy and money in different organizations to help and give back to society for a long time. It’s something that I believed in, and I’ll give you a story there. I’ve thought a lot about this as my parents came to this country, I’m again very grateful for the opportunity that Canada has given me and so I feel this sense of duty to give back to this country, to my community, to help people around me be better off and to support them in every way possible. It’s just something that is ingrained in me because I feel a level of thankfulness and gratefulness to everything I’ve been given.  I’ve always kept a very busy life sharing and having a social life and a deep career and all the things that have been going on. I’ve always in my life made time for giving back to really important parts and things I’m passionate about. My first interaction with this was in my second year of university. It was a crazy time in engineering and all these things going on in my life, I constantly had no time, but I went out for pints with a couple of friends and one of my buddies who I went to high school with came late and I asked where he was and he said “Oh, I was out with my little brother”. And I said you don’t have a little brother, what you talking about? He said he is a volunteer with Big Brothers. I started asking about it and then I sort of went away that night and I asked myself “Am I doing enough?”. The next weekend I signed up for Big Brothers and became a Big Brother and that taught me so much. I balanced it in my life and people would ask me how I’m going to make that work and I just did it. It taught me so much about giving and getting as an individual. When you give, the importance of it and the joy of it – and from there on I just started to get involved. So, today I have a deep engagement in many important organizations that I’m very passionate about. I apply myself to them, but I will say that I will do that for the rest of my life. But I will say what I am aspiring to and I’m still building it – it is the most important project of my life – how I can make an impact. Today I know that I try to add value and all the rest of it, but I’m talking about really giving with impact. And I want to apply the same rigor and entrepreneurial spirit to the way I build businesses, and how I helped try to change the financial services industry, and improve that on behalf of Canadians, to how I can give and help causes that I believe not just in a short-term, with time and money, but actually for the long run to really innovate and help drive outcomes that are meaningful and change society in a meaningful way. So, I’m excited about that. That’s my next big project. My wife and I have spent a lot of time talking about how we will start to pivot our minds towards that as a core, and I haven’t sold it yet, I’ve got lots of ideas. I’m really energized by getting to it, I’m excited, but we haven’t solved it yet.

Jason Boudreau:

That’s great. It’s so neat to hear that you were a Big Brother. I joined Big Brothers in 2008 Carissa and I worked together at the time, but she was living in New York, and so we did a couple of years long distance. I found myself thinking the same things as you just saying. “Am I doing enough?” And then someone introduced me to Big Brothers. I had all this time because I wasn’t in the dating scene and I had my soon-to-be wife living in New York and I said, you know what? I’m going to be a Big Brother. I have two younger brothers, but this was obviously a really important thing for me outside of the family, and I ended up being matched with my little brother and we had a 5-year official match from 2008 to 2013 and they gave us this award for long standing match. We’ve kept in touch ever since. Even though we officially kind of left the Big Brothers program, we’ve kept in touch, and it’s been really neat to see his life grow and I got to know, obviously, his mom really well and it was just such an impactful organization. I think the work they do in the community is so phenomenal that it’s really amazing to hear that you were also a Big Brother.

Just to wrap up the dialogue here, I wanted to ask you about sort of giving back impact. If you’re talking to the next generation, let’s say you’re talking to your kids about this sort of subject. This is something that Carissa and I talk to our kids a lot about, because obviously we recognize that there’s certain privileges that they have in their life that we didn’t have and we want to give that to them, but at the same time recognizing that there’s a responsibility to give back to the community. Let’s say you’re talking to your kids or a younger generation. What would you share with them about the importance of giving back and how to go about it in their lives today.

Som Seif:

I think it’s about showing them the joy that comes with it. I go back to the statement I made earlier about your actions, the things that you do every day that they are watching. They see all the things that you do and how you feel about it and how it makes you happy or not, and the impact of it. I think that’s the best thing you can do with them is showing that. When I was growing up, I didn’t have lots of stuff. All I had was my dreams. In many cases I’ve taken away some of those things from my kids because they grow up in a different life setting and many things that they have in their lives or they’re very fortunate to have. We have to find different ways to inspire them to be something greater than what they are today in many ways. I talked earlier about wanting to learn how to be able to give with impact…I think the passion that goes into that is something that we’ll teach our kids because they’ll watch us, and I think it is the best way of learning through being in your own actions.

When I look at my kids, to me the most important thing is to always be developing and learning. I have this belief that life is you versus yourself 12 months ago. All other competitions are crap, it just doesn’t matter, right? So, this idea that people should be worrying about how they are relative to somebody else doesn’t matter. It’s about how you have progressed as an individual over the last 12 months or the last six months or whatever benchmark you want to judge yourself by. If you, as an individual, think that way, you’re just going to get stronger. You’re going to get better. You’re going to do more. You’re going to feel more accomplished. You’re going to attack your goals, and I think that’s the most important thing I want to teach my kids. I think it’s a really powerful way to think in life.

Jason Boudreau:

No doubt, that’s great. I just finished listening to Dan Sullivan’s latest book called “The Gap and The Gain”, and that’s exactly the message. The natural human instinct is to measure ourselves against others and against some horizon that we’re really never going to get to. It’s truly a horizon. However, if we look back and measure ourselves against how far we’ve come, that’s where we get fulfillment, that’s where the gratitude comes from, that’s where that energy and that desire to keep progressing comes from. It was just a really neat reminder about the importance of acknowledging growth from the past to today versus trying to just keep growing and growing and growing without knowing where you’ve developed from.

Som Seif:

That’s right, it’s a great way to think about it.

Jason Boudreau:

Well, why don’t we wrap it there? I mean, this has been such an awesome juicy conversation. I really appreciate you taking the time in and thanks for opening up and sharing about your journey and your family’s journey. And speaking of gratitude, I am really grateful for the relationships that we’ve built over the last 5-6 years, and certainly excited to see where things are heading.

Som Seif:

Well, thanks Jason and I feel the same way. It’s a real joy to watch you and the way you think, the way you act and the way you have built a great practice in supporting your customers. What makes me excited about what we do every day is supporting entrepreneurs like yourself. So, it’s a real joy to be a partner of yours?

Jason Boudreau:

Thanks everyone for tuning in to the Polestar Podcast by VELA Wealth and stay tuned for our next guest next month. Thanks everyone.

In this podcast, Keith Allan of Harness Investment Management and Rob Wallis discuss positioning for portfolios and investment markets over 2023. They go through the current themes in asset allocation in portfolios given the current economic backdrop and what may happen in the coming year. They also discuss the recent talk around interest rates and the effects on growth and returns in the coming twelve months.

About the Guest – Keith Allan

Keith Allan is a Portfolio Manager with Harness Investment Management. Harness has engaged in a strategic partnership with VELA Wealth and provides discretionary portfolio management for many of VELA’s clients. With more than 15 years of buy-side investment management experience, Keith brings a wealth of knowledge and experience to provide insight and guidance to clients regarding their investment portfolios. At Harness, Keith is responsible for developing and maintaining investment portfolios for VELA clients. Keith is dedicated to fostering long-term relationships with high-net-worth individuals and families by providing a clear and transparent vision to help them achieve their investment goals. To learn more, please visit Harness Investment Management team page.

About the Host – Rob Wallis

Rob Has provided senior financial planning and advice to VELA clients for over 15-years. He excels at working with entrepreneurial professionals and business owners to define their individual ecosystems and establish meaningful life and financial goals. He has specialized expertise in guiding healthcare professionals who are building multi-location, and specialist clinics. To learn more, please visit VELA team page.

The episode is also available on:

Read the transcript of the Polestar Podcast here.

Listen to the Polestar Podcast here.

Podcast Transcript

Rob Wallis:

Welcome to VELA Wealth Polestar podcast. It is a pleasure to be interviewing Keith Allan from Harness Investment Management. Today we’re going to be talking about positioning, not predictions, for portfolios and investment markets over 2023, and we are deliberately not seeking a prediction from Keith as we don’t want to hold him to it. That said, we’re aware that lots of predictions do not come to fruition, so hence the title of this podcast is “Positioning, not predictions.”

So, with that in mind, Welcome Keith! What themes are we currently seeing in asset allocation in portfolios given the economic backdrop? What may be happening this year?

Keith Allan:

Well Rob, thank you again for having me. I certainly enjoyed the last time you had me on and I feel fortunate to be back.

Yes, positioning, not predicting. It’s always tricky to predict what’s going to unfold and manifest in capital markets, so I think giving clients and folks out there a better idea of how we have positioned ourselves would be certainly appropriate. With respect to the asset allocation, fundamentally, our position hasn’t changed over the last 18 months. For us at Harness and for the work we do with VELA clients, I think you would agree that our position has always been the same–that diversification is a key. We are a big believer in positioning clients’ portfolios with a mix of equities, fixed income, cash, and alternatives, and that hasn’t changed.

How do we tilt those asset classes, have perhaps evolved over the last 18 months. I think given the current economic climate, we’ve been more aware of using alternatives and real asset classes to a higher percentage, certainly being aware of what’s going on in the fixed income environment and how those assets have certainly underperformed, and what types of equities we’re holding. But we still believe in those four main asset classes, and we still make up the bulk of our portfolio allocation.

Rob Wallis:

So, lots of talk recently has been around interest rates and it’s super interesting to see higher interest rates again. It’s been at least a decade since we’ve seen any meaningful returns in cash as an asset class. We’ve always believed cash is an important asset class to hold because it provides opportunities to people to seek returns for that. That said, obviously, we’ve got inflation that’s driving higher interest rates to an extent. Given that backdrop now that we can see some meaningful returns, for example through the cash product that Harness has, how do you see interest rates affecting growth and returns in the coming 12 months?

Keith Allan:

I think that’s a great point, Rob. We are actively marketing and saying that cash is asset class – a true asset class now because you can use cash to get a yield north of 4% – 4.5% in some cases, which is meaningful for clients, especially those that want to keep their cash available and keep that dry powder available for opportunities. So, we are using cash as an asset class. We highly encourage it for clients, and the purpose of high interest savings we use for our clients as a cash position is yielding north of 4.5% right now. So, it’s certainly appropriate for those that want to keep cash now. With the second part of your question – with respect to interest rates and fixed income assets – everyone knows that as interest rates rise, fixed income assets fall. It’s an inverse relationship. We can spend the whole podcast talking about how and why that works, but folks don’t want to hear that. But the reality is, that’s what happened. So, as we’ve seen, interest rates have risen over the last 18 months, the capital depreciation of fixed income assets has taken place, and we’ve seen fixed income assets, most notably bonds, decrease in value. So, the question is then how do we utilize fixed income as an asset class? I think people have to understand that we use fixed income as a hedge in our portfolio. So, fixed income is not built into the portfolios to attract meaningful gains and show tremendous amount of capital appreciation, because that’s not what it’s there for. It’s there to provide a hedge, and yes, the assets have decreased in value, but over the long-term fixed income will do its job by providing a hedge against equity volatility and other volatility with alternatives. It’s there to provide us Gettys distribution of income in the form of the coupon, the bonds pay, and in most clients’ portfolios, those ETFs that synthetically hold the bonds or capture the bonds and pay out the distributions. So, while the assets themselves have decreased because of the rising interest rate environment, we still see them as a significant part of our portfolios, and we’ll continue to be that hedge against equity volatility. I think there was the third part of the question was what about interest rates? Well, certainly seeing interest rates rise to unprecedented levels over the last year and a half. It appears now that those interest rate hikes are on the path to stability. I don’t think, and in my estimation, we’re going to see the 100-basis point or 75-basis point hikes that we saw in the middle of 2022. That being said, it’s looks like there’s going to be 1/4-point hike here in Canada over the next couple of weeks. I can’t say for certain if that will be the last one or if we might see another quarter point hike in March, but certainly I think the days of drastic hikes in interest rates are potentially behind us.

Rob Wallis:

So, has the Bank of Canada achieved its mandate to control inflation?

Keith Allan:

I would say absolutely. It’s on the path to achieving it. I don’t know if it’s actually achieved it yet. I read today that the inflation rate in Canada has fallen to 6.3%, which is significantly lower than the north of 8% it was in mid-2022 or in third quarter of 2022, so it’s down to a level of that while still high, I think more in line with the expectations the Bank of Canada would like to see. So, in that way, it’s working. I don’t think it has achieved it yet, which is why I still feel like we may be in line for a 1/4-point hike here at the end of January. It’s a lengthy process, it doesn’t happen overnight as people have seen in a very painful way. But it’s getting there, and I am of the belief that if we were to have this podcast 12 months from now, we would look back and say that it has gotten there, it’s just going to take some time.

Rob Wallis:

All right. So, in terms of interest rates and how long they’re going to stay where they are, what are your thoughts and how that’s priced into asset values?

Keith Allan:

Well, I think about what we’ve seen here since the calendar flips of 2023, so the first two and a half weeks of the year we’ve seen a nice little bump, a nice little rally in capital markets, and I think that’s indicative of the fact that people feel like the worst is behind us, that we are now in an environment where there might be a small rate hike. But there is a higher probability of interest rates staying Status-Quo for the rest of 2023, then there is a significant rate hike. So, when that sort of filters down or cascades down in the economy, people become bullish in the sense that if interest rates have plateaued or if at some point over the next 24 months they might start getting cut that provides an environment for growth and  the sectors we saw really sell off like technology that are highly interest rate dependent, those types of names or securities or equities will show the most growth. We’ve seen that here in the first two and a half weeks of the year when the market has rallied. I’m reluctant to call it a bear market rally, I’m reluctant to call it a new bull market. I don’t think there’s any term for it. I think it’s just a matter of sentiment amongst consumers and investors that think that the worst could be potentially behind us and there could be a climate for growth here in the next six to eight months.

Rob Wallis:

So where is the capital heading right now?

Keith Allan:

Do you mean what asset class, or do you mean just in general?

Rob Wallis:

What asset class?

Keith Allan:

Well, we’re starting to see money filtered back into equities, which over time, equities have empirically proven that they are the best performing asset class out there. Certainly, that hasn’t been the case over the last 18 months, but repeatedly people gravitate towards that asset class. So, I think we are seeing more liquidity in the market. We’re seeing more capital enter traditional equities, but I still feel like people want an alternative, they want the ability to diversify their portfolio via private equity, private debt, alternatives, real assets, infrastructure, commodities. So, I think we are, and we will continue, seeing the capital deployed in those areas as people want to find the way to generate alpha. I know you speak a lot to your clients about that the days of the sort of 70/30 portfolio is an antiquated way of thinking about investing. I see a lot of people feel that way too – you’re not going to gain meaningful returns by just simply saying 60/40, 60 equities, 40-somethings income – set it, forget it, it’s done. It is very difficult to achieve meaningful alpha in your portfolio by doing that. So, for our clients we’re looking to deploy their capital in other areas.

Rob Wallis:

Got it. So, what positioning are you taking in alternatives right now?

Keith Allan:

That’s a good question, and it’s a great segue into the new portfolio that Purpose Investments has launched. They’re calling it the Alternative Completion Portfolio, or in short form Liquid Alts. This is a portfolio that was launched right before Christmas, and one that we’re beginning to put clients into, where appropriate of course. It’s effectively a portfolio that allows clients to gain access to real assets, infrastructure, some hedge funds, commodities, and a little bit of crypto, in a very liquid fashion, in the sense that their money isn’t tied up, there’s no lock up, period – it’s a liquid portfolio. All of its products within the portfolio are mark to market daily and have daily liquidity, but it is allowing clients to gain access to non-traditional asset classes and we’re really bullish on this portfolio. We think it will be a great way for clients to hedge their position, allow them entry into asset classes that they otherwise wouldn’t get without their money managers or other investment professionals. So, that’s one way we’re allowing clients to gain access to alternatives.

Rob Wallis:

What about crypto as an asset class? It has been interesting few months there. I’m sure some people are pleased with the predictions that they made in the past about what’s happened. What are your thoughts on crypto as an investment, and if it’s appropriate, what type of allocation would you put somebody in, at all?

Keith Allan:

Well, I will go on record, Rob, saying that my position on crypto has changed and I think anybody that reads my quarterly articles, or my quarterly updates knows that I was dead set against it a year ago, maybe a year and a half ago. I wouldn’t say that I’m backtracking on that. I still don’t feel that it is an asset class that has substantial fundamental prospects where it can be something where you want to hold 10%, 15% or 20% of your portfolio. That being said, I do feel that there is a small place for it in a very small percentage in one’s portfolio. In this Alternative Completion Portfolio, for instance, it holds the 2,5% weight. So, I think I’m becoming a little more flexible in my thought process there. No doubt it’s sold off considerably, and we’ve seen volatility in that asset class that would make a lot of people nervous, but it is also showing over the last several years that there’s potential for some meaningful gains there. So, I think having it in a 1.5% to 3% weight in your overall portfolio would certainly be appropriate.

Rob Wallis:

As we look to the year ahead, what risks do you see out there that could affect economic growth and stability for Canada specifically?

Keith Allan:

Well, I think people are very worried about the recession, whether we’re entering a recession or not. When I look at what the climate is and the current conditions of the economy, I feel like we’re there already. And I suppose if interest rates continue to rise, which again, I’m not so sure they will, that could provide some serious headwinds, but overall, I’m bullish on what 2023 has in store. I think the first half might be touch and go, but I certainly feel there’s opportunity for growth in the second half.

Rob Wallis:

For Canada specifically, or overall, for the global economy?

Keith Allan:

For Canada specifically. Again, it’s such a commodity driven country, and whether you are for or against energy and crude and oil and all of that, the reality is, oil is such a big part of the Canadian landscape and we’re in a full market for oil. And yes, a lot of that has to do with the war unfolding in Ukraine. When we look at other resource commodities, it’s a good place to be right now – and those stocks are the ones that have been best performing. So, I think Canada is in a strong position and as I said, I’m bullish on what 2023 has in store. I don’t believe we’re in a bear market rally. I think this is the beginning of what could be a very promising year, but I think it’ll take time. It’s not going to happen in Q1, unlikely in Q2. I think we won’t see some meaningful gains until the latter half of the year.

Rob Wallis:

Well, that kind of sounded like a prediction case.

Keith Allan:

No, no predictions.

Rob Wallis:

Would it be fair to say that you’re positioning portfolios to take advantage of any growth that happens and you’re not overly defensive right now?

Keith Allan:

I think right now we’re still remaining a little bit defensive. Our cash position is high, we’re encouraging clients to keep dry powder available to keep that cash on hand. As we progress through Q1 here in Q2, our cash positions for clients will probably start to hold a lower weight in cash and start to employ some of that capital elsewhere. We haven’t made any huge fundamental changes to the portfolios post-Christmas. We made a few model changes prior to Christmas. But overall, we’ve kind of stayed the course here and our clients are starting to see some meaningful gains, especially over the last three months. So, I think overall we’ll always look at ways we can improve our clients’ portfolios, but I think our positioning is quite strong right now. As the year unfolds, we’ll look at what tactical decisions we can make to continue to achieve meaningful gains for our clients.

Rob Wallis:

Got it, Keith. So, final question, how positive are you that we will end the year in a positive space?

Keith Allan:

I’m very confident about it. I feel like the first half will be kind of touch and go similar to what we saw in the latter half of 2022, but I think as we enter the second half of 2023 we’ll be able to see some meaningful advancements in capital markets and as such in our clients.

Rob Wallis:

And you’re positioned to take advantage of all of these upsides, as well as protect from any down position.

Keith Allan:

Absolutely. You never want to be reactionary in our industry. We want you to be forward-looking; you want to anticipate and be able to act before the market does and I feel like we put ourselves in that position.

Rob Wallis:

Awesome. Keith, thank you for your time. It’s a pleasure to have you on the Polestar podcast and we look forward to welcoming you back at the end of the year and we’ll see what happens.

Keith Allan:

Thank you, Rob.

Disclaimer

The information provided in the podcast transcript is designed for general informational purposes only and is not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.