private market investments

Redefining risk: Modern Portfolio Theory and our attitude

by Edward Robertson   25 Nov 2016
[Note: this article was made the cover story for The Private Investor (formerly Exempt Edge) Issue 19, January 2017]

Fund manager Scott Vincent’s 2011 article “Is Portfolio Theory Harming Your Portfolio?” [1] is a compelling manifesto to support the position that knowledgeable investment can reliably beat the market.

His message is that Modern Portfolio Theory (MPT) dominates financial thinking, even though it is demonstrably faulty in real world application. MPT and its close association with large scale quantitative methods are deeply engrained in the financial services industry. This in turn has exerted a detrimental influence on our attitudes towards investment. It pushes us to accept very poor market returns, to over-diversify and water down our portfolios, and to confuse and cloud our view of risk.

Revisiting Due Diligence for Private Market Investments

by Edward Robertson
 

In the eyes of the investor, the due diligence (DD) process carried out by Exempt Market Dealers (EMDs) for private market investment products seems very problematic.

CHALLENGES

First is the question of motivation of EMDs and their representatives. Motivation can be oriented more towards immediate profitability of the EMD rather than towards safeguarding the financial soundness of the product issuer. For example, an EMD may select an issuer on the basis of an inordinate commission or preferential terms, or charge a high fee for conducting due diligence. From the perspective of the EMD, it is difficult to maintain a viable operation without somehow looking out for its own interests.

Due diligence: the deal structure

by Edward Robertson
[Note: this article was re-published under the title: "Deal Structure: A Key Concept When Exploring Private Investments" for The Private Investor Issue 21, July 2017.]

Is investment loan interest always a tax deduction?

minimize tax

by Edward Robertson

[UPDATE: 23 Jun 2018. After discussions with my accountant as to what deductions can actually be claimed, and remembering Garth Turner's pronouncement on the subject, the rules outlined in this blog post are decidedly the conservative, by-the-book version. Turner said: "Some advisors will tell you investment loans are only tax-deductible if the money is used to earn actual income (interest, dividends) as opposed to buying stuff that goes up in value (capital gains). In the real world, that’s hokum. The CRA will never enforce this arcane tax code verbiage for average investors." [3] ]

Investors in private market assets will likely contemplate at some point borrowing to invest. I thought it worthwhile to summarize rules around using investment loan interest as a tax deduction, and comment with respect to private market products.

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