Conversation for April 18, 2022

A private markets supercycle

The Financial Times (paywall) reported this week that the “hottest thing in finance…is private capital – things like venture capital, infrastructure, private equity and direct lending — and it is absolutely booming.”

And Goldman Sachs believes private capital has “much, much further to run”, forecasting the overall size of the private capital industry to grow to $30 trillion by 2026 driven by continued inroads with retail investors.  The Financial Times argues this has been the catalyst for a “mad dash” by global institutional asset managers to buy up “alt specialists” (paywall) to move beyond traditional equities and bonds because “everyone wants more”. 

The question is, how is Canada faring in this race? Well, the big banks are getting into the sector.  Bloomberg News reported that RBC is in talks with several alternative asset managers to offer their investor advisors and high-net-worth clients access to investment strategies in the private credit space. We’ll be watching closely as it has been speculated that they'll launch these funds later this year.

Amidst the private capital gold rush, are we also seeing a real gold rush underway?

Senior Portfolio Manager of the Ninepoint Gold & Precious Minerals Fund, Maria Smirnova of sub-advisor Sprott Asset Management, joined Investing News Network this week to chat international monetary policy, and how precious metals equities are the new growth stocks. Faced with de-dollarization; government debts at all-time highs; weaponized energy markets; and soaring inflation and volatility in certain key markets – like energy, food & farming and metals – investors are betting on gold and silver after years in the wilderness.

Talking about supercycles, there’s no time to waste for Canadian Energy

As bombs continue to fall in Ukraine, the world has awakened to a new reality: who you buy your energy from matters. Eric Nuttall, our Senior Portfolio Manager for the Ninepoint Energy Fund and Ninepoint Energy Income Fund, takes the pen in his Financial Post column this week and writes that to the civilized world, purchasing energy from Russia is no longer politically palatable and this will have a profound impact on energy markets for years to come. However, there is no easy fix.

Canada, a net oil importer of 504,000 barrels of oil per day, amounting to an annualized $21-billion wealth transfer, could potentially raise production, but the call from shareholders to rein in growth in favour of free cash flow and share buybacks, given historically low share valuations, likely takes this off the table in the near-term.

Eric warns that unless meaningful policy action is taken, the result will be energy poverty and all-time high oil prices, with a follow-through impact on the global economy for years to come. He calls for a long-term Canadian policy that champions our responsible energy patch. Our global leadership in all things related to environmental, social and governance means one thing: the world needs more Canadian energy.

The climate transition can win too.

If there is a landscape where responsible production does rise, energy producers will enhance their participation in cap-and-trade emissions programs.  They’ll trade carbon credits, which are mildly positively correlated with fossil fuel prices and commodities. The logic is that increased gas prices encourage companies to switch to high carbon emitting fuels and, as a result, increasing demand for carbon credits. Yes, since the Russian invasion of Ukraine and the sustained higher fossil fuel prices, the cost to emit carbon witnessed a significant pullback, but prices have since stabilized. And the fundamentals are still there.  For an emerging asset class like carbon credit, volatility management is critical. The Ninepoint Carbon Credit ETF (NEO: CBON) invests equally in the four major ETS markets globally with quarterly rebalancing. This strategy has demonstrated remarkable resilience in the unprecedented carbon market volatility.

The Ninepoint Team!