This article appears in the May 2022 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
For Duane Ledgister, true diversification in investments is often misunderstood.
The vice-president and portfolio manager with Connor Clark & Lunn Private Capital Ltd.said he finds prospective clients’ portfolios usually consist of some combination of fixed income and large-cap U.S.and Canadian stocks.
“They’re only using [three] levers,” Ledgister said. “I believe there’s more like 17 different levers they can pull.”
Among those levers are alternative asset classes, such as private real estate, private infrastructure and private debt. According to Ledgister, these investments “drive the same return with less risk” because, when managed properly, the returns come from recurring cash flow such as from rent rather than capital gains.
The alternative investment space has grown substantially in recent years. According to U.K.based data firm Preqin, global assets under management (AUM) across all alternative asset classes was US$13.32 trillion at the end of 2021, up from US$7.32 trillion at the end of 2015. Global AUM is expected to reach US$23 trillion by 2026.
Ledgister, 56, is trying to help clients see the value of nontraditional asset classes.
“By utilizing more of these private alternative options to strategically diversify the portfolio, it lowers the potential risk and volatility,” Ledgister said. In his experience, less risk and volatility mean “clients are calmer; they’re more confident; they’re more willing to understand the overall strategic, diversified plan. And they tend to get better outcomes because they stay the course.”
Alternatives can be illiquid since they’re mostly private. They also tend to have high minimum investment amounts and higher fees than public investments do.
Alternatives’ benefits include lower volatility, because alternatives aren’t correlated to stock and bond markets, and their diversification across markets, portfolio managers and investment styles. They also can provide protection against inflation.
Ledgister recalled a couple in their late 50s who had just become his clients. They planned to draw income from their portfolio to fund their lifestyle.
The couple’s portfolio was 65% equities, 35% fixed income. They were concerned about their fixed-income allocation and investments not being able to drive the returns they were looking for. Ledgister was concerned about the negative effects rising interest rates would have on the preservation of capital within their fixed-income investments.
He adjusted their asset allocation to 53% equities, 23% fixed income and bonds, 12% alternatives and 12% in a market-neutral hedging strategy.
Ledgister described himself as a top-down investor. He uses both Canadian growth and Canadian value strategies within his clients’ portfolios “to make sure they’re never too far out of range in terms of risk and performance.”
He got his start in the investment industry in the early 1990s, when inflation last matched current levels. After studying economics at Western University in London, Ont., he worked at a mutual fund dealer that was part of the Mackenzie Investments organization.
“I had a real interest in economic news [and] money, [and] it developed into an interest in understanding business owners and people,” Ledgister said.
His client base tends to be family-business owners — from suppliers to medical professionals — ranging in age from late 40s to early 60s. AUM for most households is between $2 million and $10 million. He also manages assets for institutional clients, which make up about 5% of his book.
Ledgister said he’s always been intrigued by entrepreneurs, the process of bringing an idea to fruition and the trajectory of success. “It reminds me of the approach of trying to build out someone’s portfolio:you’re taking different skill sets, talents and experiences and building it to a greater whole,” he said.
Business owners also seem to be interested in Connor Clark & Lunn’s approach, Ledgister said. “They tend to understand the discretionary model that appeals to [a philosophy like] ‘Give us a set of instructions, and let us go off and do what we do.’” Ledgister gains clients through referrals, reputation and his network of business connections.
He didn’t have any difficulty breaking into the industry, something he attributes to the help he got along the way.
“I was quite fortunate. I’m a huge believer in mentors, and I had a couple of mentors along the way that really helped me navigate the industry,” he said.
Diversification of another kind is also important to Ledgister.
The industry could do a better job of communicating to people in different ways, he said — “to have a diversity of message, to have a diversity of offering, to have a diversity of experience for clients. To seek out Black people in terms of education and going to certain educational institutions.”
In 2020, Ledgister co-founded the Black Opportunity Fund, aiming to establish a sustainable pool of capital to fund Black-led businesses and organizations.
“People generally gravitate toward people who make them feel comfortable,” he said. “And, sometimes, that’s people who look like them.”