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The Bank of Nova Scotia’s money management arm is creating a private-assets unit and will launch its first private debt fund by year-end.
Scotia Global Asset Management will partner with external debt managers to build the fund, which will be focused on mid-market companies in the U.S. and Canada, Neal Kerr, the head of Scotia GAM, said in an interview in Toronto. The idea is to capture around 200 to 300 basis points in premium that these riskier and illiquid assets could pay in comparison to publicly traded fixed income.
“We’d be happy if this got to hundreds of millions of dollars over time,” Kerr said.
Scotia GAM had $300 billion (US$243 billion) in assets under management as of the end of July 2021. Currently, most of its investments are in public markets, with private assets accounting for less than 1 per cent of the total, Kerr said.
It plans to build a suite of products that include private equity and real estate. “What we do next will really depend on the needs of our primary investor population, but real estate is an obvious opportunity,” Kerr said.
Private debt markets are becoming more popular as investors hunt for higher yields. Quebec’s US$315 billion pension plan said last month that it wants to expand further into private lending amid attractive returns and manageable risk. Private credit markets are less liquid than publicly traded stock and bond markets but typically offer higher returns as a result.
One of Scotia GAM’s subsidiaries, Jarislowsky Fraser Ltd., last month partnered with HarbourVest Partners LP, a Boston-based private equity firm, to gain access to private markets.
Scotia GAM has reduced its already “very small” exposure to China, which was mainly in technology-oriented businesses, Kerr said. While acknowledging headwinds facing the world’s second-largest economy -- including the crisis at China Evergrande Group, the government’s crackdown on Big Tech and the ongoing energy crisis -- Kerr said value and opportunities in China may emerge. Supply constraints and the potential for a sudden rise in interest rates globally are his main concerns.
Head of Scotia GAM also said:
- Asset manager plans to launch new fixed income products early next year
- Toronto-based firm expects annual AUM growth of about 10 per cent
- Scotia GAM has 50 per cent of assets invested in Canada, 30 per cent in the U.S., 20 per cent in international markets
- Firm is in the process of running its ETFs exclusively
- It’s unlikely to launch a crypto fund but has “flexibility” in existing hedge funds to invest in cryptocurrencies