This episode is a must-listen for Canadians looking to diversifying beyond traditional investment options and make their portfolios more resilient. Meric Koksal, Managing Director and Head of Product at CIBC Asset Management, explores how alternative investments can complement traditional portfolios, potentially offering higher returns and more protection from inflation.
[03:20] Meric: “With the public markets shrinking and companies staying private longer, it really fueled the growth of these alternative investments or another way to talk about it is the private investments.”
[05:02] Meric: “Private credit, which we hear a lot about, and it's arguably the fastest growing pillar within alternatives … for instance, a fund manager may be lending money to a soccer team to support a stadium construction.”
[7:03] Carissa: “I found it surprising that 90% of companies are privately held. They're not listed on public markets. As you mentioned, public markets are just like a sliver of the pie, and it seems like we're missing out on that broader universe.”
[11:16] Meric: “In a nutshell, these product alternatives provide great benefits to clients from higher income potential, higher return potential, without introducing any additional risk portfolio while you're providing some inflation hedging.”
[13:01] Meric: “What used to be, you need to have a $5 million investment to even start talking about these investments is now accessible for as little as $25,000.”
Meric Koksal is the Managing Director and Head of Product at CIBC Asset Management. She leads the firm’s efforts to make alternative investments more accessible to Canadian investors. With over 20 years of global investing experience, Meric has worked on trading desks from Wall Street to Singapore, bringing a broad, world-class perspective to the investment space.
She is an expert in driving innovation within investment strategies, focusing particularly on alternative assets like private equity, private credit, and real assets. Her deep knowledge of these asset classes helps Canadian investors navigate today’s evolving market landscape. Passionate about increasing accessibility to alternative investments, Meric is dedicated to providing practical solutions for individuals looking to diversify their portfolios and achieve long-term financial goals.
Connect with Meric Koksal on her LinkedIn.
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Carissa Lucreziano: Welcome to Smart Advice, a podcast connecting you with timely financial advice, investment strategies and economic trends, empowering you with insights to make informed decisions about your money. I'm CIBC's financial advice expert, Carissa Lucreziano.
When Canadians think about investing their money and the dynamics of their investment portfolio, most think of familiar types of investments like stocks and bonds, mutual funds and cash equivalents like GICs. But more and more investors are starting to ask, what else is out there especially as they look for new ways to grow their money and diversify their portfolios. Imagine investing in infrastructure projects, new real estate developments through a private fund, or putting money into a pool that finances Canadian small businesses through private credit. In the investing world, we call these alternative investments.
Once reserved for institutional investors, pension plans and the ultra wealthy, alternatives are stepping into the spotlight as a compelling option for individual investors looking to diversify and unlock new sources of return. But what are alternative investments? What types of opportunities are available to the individual investor, and how do they fit into a typical Canadian portfolio?
To help answer these questions, I'm joined by Meric Koksal, Managing Director and Head of Product at CIBC Asset Management. With two decades of experience on trading desks from Wall Street to Singapore, Meric is at the forefront of making alternative investments more accessible to Canadian investors. Her expertise lies in driving innovation and crafting investment strategies that address the evolving needs of Canadians. We're thrilled to have her with us today to get to the crux of this rapidly growing space of alternative investments.
Meric, thank you so much for joining me today for this episode of Smart Advice where we are going to dive into portfolio considerations for an ever changing market landscape. Thrilled that you are here with us to dive into this topic.
Meric Koksal: I'm thrilled to be able to join you as well.
Carissa: Let's start with this question. I think a lot of investors are quietly asking, what exactly are alternative investments? Can you break it down for us?
Meric: Absolutely. Alternative investments are effectively anything that would fall out of your traditional investment framework of what's available publicly today. When we think about the public markets, we typically think about the listed equity markets globally, and we think about the fixed income markets, bonds, currencies, et cetera. Really alternatives is anything that falls out of that framework, and the reason it's becoming more and more important for investors to pay attention to it is we are seeing the public markets shrink. That's one fault, the number of listed companies, for instance, in the equity market, has significantly gone down in the last couple decades.
There's a lot more money following these alternative strategies. There's a lot more money available for companies to stay private longer. That's why we don't hear as much about IPOs. For those of us who were in the business back in 2000 that's all we heard about, the initial public offering. You don't hear that as much. So, between those two things, with the public markets shrinking and companies staying private longer, it really fueled the growth of these alternative investments or another way to talk about it is the private investments.
Carissa: Can you give us some examples around like, I know you speak a lot about the different types of components and the pillars, like private equity, private credit, real assets. Can you give us some examples around those types of investments as a form of alternatives?
Meric: Sure thing, and now that we pretty much know alternatives is everything that's not public as the name suggests, we are getting into the specific pillar study with private equity. Private equity funds effectively allow clients to have access to ownership in private companies. It can come in different types, where for funds that are investing in, for instance, more established companies that is called growth equity, or you can go to the other end of that spectrum, where there are funds that will invest in very early stage companies, which we would call venture capital.
A great example of a private equity is effectively a fund goes in and buys us controlling or a significant portion in a private company, and they help the management of that company in restructuring it, enhancing their business activities, etc. The goal of it is, ultimately, when the company metrics improve, you can either sell that to a larger player and create an offer through that, or you can go public at a higher valuation. That's a great example of private equity, is ownership in private companies.
Private credit, which we hear a lot about, and it's arguably the fastest growing pillar within alternatives, is effectively funds where they're lending money directly to private companies, and you would hear this being referred to as non-bank lending, and this can be done in a very diversified form. For instance, a fund manager may be lending money to a soccer team to support a stadium construction. That's a great example that I find resonates with clients. Or another fund investing money in a number of car dealerships for an expansion into additional areas. These are great examples of a private credit investment.
Last but not least, within the private space is what I would call real assets. This is where the investment is happening in physical assets like infrastructure or natural resources. Infrastructure, for instance, when you think about it, it's an investment in roads and airports. Then when you think about natural resources, you can think about timber agriculture, both of which are dear to our hearts in Canada and can come in many different forms. Those are really the three main focusing on the private the three main pillars, private equity, private credit and real assets.
Carissa: It's really interesting because it just opening up a different dimension or dynamic that traditionally, alternative investments were reserved, if you will, for institutional investors, pensions, wealthy investors. Now to be able to have access to it, it's no wonder why they're becoming such a powerful part of the investing conversation today. I really love how you broke it down. The rationale as to why they are becoming so popular and of interest to Canadians is public markets are shrinking and companies are staying private for longer.
Now, I know that you really love this stat, but I found it surprising that 90% of companies are privately held. They're not listed on public markets. As you mentioned, public markets are just like a sliver of the pie, and it seems like we're missing out on that broader universe. What kind of potential do private investments unlock?
Meric: That's a great question. They really offer a lot of benefit to clients. One of them is, and really tying your statistics in these companies, they are private. There's 90% of them are out there. They're private, which means they don't offer the same liquidity. When you go into the public markets today, you can buy and sell stocks, for instance, very easily, intraday, within seconds. When you're talking about privates, you don't have access to that, which means investors should be compensated with higher returns for having less liquidity. We'll get into a little bit more details. There are some definitely myths around how illiquid these investments are, but one of the key benefits is you get higher returns for giving up a little bit of that liquidity. That's number one.
Number 2, you're really getting access to these unique opportunities that you just don't do in public markets. That should also help with your enhanced return potential. Now that we have enhanced returns, which is great, let's talk about how these investments can help as a diversifier. The beauty about these investments is they tend to have a low correlation to public markets. Private equity, for instance, is probably the closest to public equities, but even in that sense, you're not going to have a one to one correlation to what's happening in the public markets.
The main reason for that is these are private investments, and they do not move with headline news. We all know very well how much headlines and news have impacted performance for public markets year to date globally. You have this enhanced return and you have a lower correlation, which comes with, typically, a lower risk profile for this investment. So really, with those two combined, you are giving better returns to clients without introducing more risk to their investment profile. That's ultimately what we try to do for our clients every single day. That's at the core is how they add a lot of value.
On top of that, income. We all love income, both in Canada and the rest of the world, especially with an aging population. That I would say by far the biggest demand we get is investments that will provide steady monthly income. Private credit, which we talked about before, is a prime example of that when you're doing these highly customized direct lending to private businesses, you tend to get a higher yield. Products currently in the market give you as much as 10% which is a significant pickup to what you can get in overnight instruments or any other cash instrument.
Is there a little bit more risk? Absolutely, but 10% really compensates for that. So, you have this better returns with less risk, and you have higher income generation, which is a brilliant additive to look into these investments. Last but not least, I would also mention inflation hedging, the last pillar we just talked about when it comes to real assets. These are physical assets, like we said, roads, airports, et cetera. They do produce income and a steady income because they tend to be non cyclical, but they also tend to produce income that moves higher with inflation.
They really act like a great inflation protection and hedging against inflation in a portfolio. Quite frankly, inflation is, I personally think, structurally a part of our life now. It’s not going away, and as it goes higher, it may impact public markets and these real assets within alternatives universe will create a great alternative for clients.
In a nutshell, these product alternatives provide great benefits to clients from higher income potential, higher return potential, without introducing any additional risk portfolio while you're providing some inflation hedging.
Carissa: Yeah, and Meric, that was really great. Thank you for taking us through that detail and really good explanation on how alternatives perform against traditional investments and helping us visualize where they can fit in a portfolio.
There's common misconceptions that alternative investments are hard to access, complex or opaque, and you've just shared some really great insights to help in that clarity. With your experience and all the work that you do, how do you feel, or how do you think the landscape is changing to help investors see the potential? What resources can Canadians tap into to learn more?
Meric: I'm really glad you asked this question, because they're really, quite frankly, I've done some traveling in the last couple of weeks, and I am still amazed at these misconceptions that you mentioned that are out there with regards to alternatives. Number one, I will say, is alternatives are only for ultra wealthy or institutions. That was true historically. That was true 20 years ago, where they were structured, where only ultra high net worth, or really institutions like pension plans and insurance companies had access to these.
The space has evolved significantly, where we are now introducing new structures that allow accredited clients to access these strategies for as little as $25,000 initial investments. What used to be, you need to have a $5 million investment to even start talking about these investments is now accessible for as little as $25,000. That's number one, is they're accessible for accredited clients, for a much smaller size.
The second big thing is, a lot of people still think alternatives is this black box that you commit a bunch of capital to. It gets invested over time, you don't really know what the investments are. You get updates on performance on a quarterly basis with a big delay. Again, this was in the past. Now, again, we've evolved significantly, and investors now get number one, monthly asset valuation. You do get a monthly net asset value on these investments. They are on time and reflect what the portfolio value is at that time.
Number two is especially reputable managers, us and our great partners that we work with, provide regular, detailed reporting, and they actually show insights to what type of investments are they going into, what kind of geographical exposure they provide, what kind of sector exposure, some specific stories onto what they're investing in, and why those make sense. This myth around that alternatives lack any transparency is no longer true.
The third one we briefly talked about it is illiquidity. Historically, again, these investments tend to be, you commit a certain amount of capital and you're invested for the next 10 plus years without any liquidity. This, again, the new structures that we're offering provide you quarterly liquidity. Having said that, these are still long term investments.
You shouldn't really look at these things. That's where you really get the true value out of them. You shouldn't think about it as I'm going to buy it now and sell it three months from now. But there is that option for liquidity, depending on certain limits, which we're very transparent about, but clients do have quarterly liquidity.
Last but not least, a lot of people think they're just too complex for an average investor. Again, I think what we mentioned about how transparent they have become and how the structure and access points have evolved. I no longer think and the community no longer thinks that they're too complex for average investors.
If you haven't looked at it, if the last time you looked at it was five years ago, I would encourage everyone listening to the podcast to take another look. It's a different world.
Carissa: Yeah, different worlds in a great time. You hit on some really great elements, like the trade off between liquidity and performance. I'm glad you really mentioned around the long term nature of these investments. Many Canadians are, you know, they have traditional portfolios, 60-40, asset allocation, stocks and bonds. There's been a lot of write up about the traditional portfolios over the last couple of years. Where do you see alternatives fit into that scenario, like around the traditional portfolio?
Meric: There's a lot of great research out there on this, but when you think about it, we said this was traditionally available for institutional clients because of all the benefits that we mentioned, and because institutional clients tend to be especially pension plans and insurance companies tend to have a longer term horizon with regards to investment. They have gone as high as 50-60% in terms of their allocation to alternatives.
That's sort of the high end of the spectrum. When we look at ultra high net worth clients, and when we talk to our family office clients, they tend to be around 30 to 40% invested in alternatives. We believe over time, a good allocation to alternatives can be around 20%. The way we come to that is, typically, you said, starting off from that 60-40 if we were to replace the 60% in equities and bring it down to 50, and the fixed income exposure from 40 to 30, and taking that 20% into alternatives, we would not be looking at more of a 50-30-20 framework.
Within that 20, I think there's space for all the different pillars that we talked about before. Private Equity is a very natural replacement for some of that 10% we mentioned in the public equity sleeve. Putting a little bit of that in private equity is a great idea to really pick up on those benefits of higher returns without introducing risk. Private credit and some of the real assets that actually do have a very interesting yield profile are great replacement strategies for some of the fixed income so that 10% that we mentioned in fixed income can be allocated partially to private credit and some of the real assets.
Then there's other options that we can look at, like infrastructure. There's some yield and growth in there, within the real assets, that can be a great complimentary to round out that 20%. But the beauty of these products now, like we said, you can access them on a monthly basis, so you don't have to make a commitment to 20%.
Now, the structures allow you to invest, diversify it among different asset class pillars, within alternatives, and get access to some top managers around the world and start building a position and watch and see and really build your expertise as you invest a little and then ultimately grow to that 20%. I hope it helps. We're thinking about it from 6040, evolving to 503020 framework.
Carissa: I just wanted to expand the purview of the topic about how clients can work with advisors, I would be remiss not to mention that we are in the largest intergenerational wealth transfer in Canada, like 1 trillion by 2026 from some stats. From your experience, how are advisors today weaving alternative investments into meaningful financial planning, not just for portfolio returns, but to support long term, multi generational goals for families.
Meric: Yeah, definitely. We always talk about those stats, right? This is not just in Canada. It's gonna be happening globally. These investments are actually ideal for that, because despite the liquidity and better liquidity metrics that we mentioned, they are ideally for long term investing. That's where you really reap the value of these investments. So, if you're talking about investing for your grandkids' future, being able to access this land of private investments for them for higher returns over the long term, is very, very important.
The other thing is, and this is actually we should have mentioned this a little bit on myths. The risk profile for these investments tend to be still on the higher end. Some of them will be rated as high risk, or some of them will be medium risk. That's definitely an important consideration when you're thinking about replacing some of your public sleeves. But also when you're thinking about intergenerational wealth and a long term time horizon, when you're talking about someone who's younger, we're also talking about typically, a higher risk tolerance, because they're not going to need this money in the next five to 10 years.
These products also are really ideal for those types of investments where you do have a little bit of a higher risk tolerance from an investment perspective as well as that longer term investment horizon.
Carissa: Yeah, and thank you for that. It's important for our listeners and Canadians to know that when they are looking at these types of investments or inquiring more, these are the things that they can think about when speaking with their advisor. Like education is key, as you mentioned, really explaining the different options and how they work and considering financial goals and time horizon.
Let's talk about CIBC’s platform and extensive expertise in alternative investments, something you are very close to. Can you share insights about the team driving this space at CIBC Asset Management and how we're expanding its solution to meet the needs of investors today?
Meric: Absolutely, this is really one of our key growth pillars and focus areas alternative investments for the next five to 10 years. It is like I said, we typically really go where our clients are going. We really try to build our platform to address clients' needs, their ambitions. We've listened to our advisors very closely and then decide what we're going to focus on. To support that, we started building a great team and really focusing on leveraging the expertise we have around the firm. I would say one area where CIBC tends to do a great job is connectivity, where we really work very closely with the experts in the south of the border. We have a team that specializes in alternative investment and has more than two decades of experience investing in these and have built relationships with great fund managers. We're leveraging that team and working very closely with that.
Private credit, like we said, is a lending business. We have expertise in lending, within our commercial banking and corporate banking. We're leveraging expertise from that. Within asset management, we have PMs that are experts and research people that are experts in the space, which we are leveraging. Really, from an IQ and IP perspective, we're leveraging the entire firm and bringing that entire firm to our clients.
Carissa: Meric, thank you for taking us through that. Last question for our listeners who are curious about alternatives, but still exploring whether it's the right fit, what is one takeaway you would leave with them?
Meric: It is an evolving space. A lot is happening. Like we said, the access has changed significantly. A lot of myths have been debunked, but it is still evolving. I just want to leave all the listeners with the fact that we are always here to help them with whatever questions they may have. It may be as simple as, where do I start? What are the couple podcasts or pieces that I should look at to get in alternatives 101, to answering more sophisticated questions. It's our job to help, and, like you said, educate and make the access, make these products accessible.
Carissa: Yeah, connect with your advisor and just learn more about it. Thank you, Meric, so much for joining us. You offered so much perspective on how Canadians can look to expand on their portfolios, and such great insights in understanding how investors can explore new avenues of investment solutions with alternatives. Thank you for being here with us today.
Meric: Thank you for having me. It was a pleasure.
Carissa: As we heard today, alternatives can unlock access to a different side of market opportunity. They offer the potential to diversify a portfolio, cushion the ride during market volatility, and may provide stronger inflation protection over time. As alternative investments are a relatively new space for individual investors, it's important to start with education, to get acquainted and aligned, like any investment decision, to your financial goals, time horizon to reach those milestones, your liquidity needs and risk profile. If you've been wondering whether your portfolio is built to navigate today's risks and capture tomorrow's opportunities, now might be a great time to take a closer look and start the conversation.
To learn more, visit cibc.com/smartadvice or speak with the CIBC advisor. Thank you for tuning in to Smart Advice. I'm Carissa Lucreziano. If you enjoyed this episode, feel free to share it with your social network. To make sure you never miss an episode, follow Smart Advice on your favorite podcast platform.