Transcript
ANOUNCER: TD Asset Management welcomes you to this week's podcast. As a reminder, this podcast cannot be distributed without the prior written consent of TD Asset Management.
INGRID MACINTOSH: Alternative investments have been part of TD Asset Management's offering for a number of years, starting with the in-house creation of our private debt Solutions to the 2018 acquisition of Greystone Asset Management, which added real asset, commercial mortgage and infrastructure solutions initially increasing vital to the investment strategy of institutional investors in Canada pension funds, foundations, endowments. These types of solutions are now available to be included as part of our solutions for individual investors.
So hello and welcome to this week's edition of TDAM Talks. I'm your host, Ingrid McIntosh, here at TD Asset Management. And today I've got the pleasure of being joined by Jeff Tripp, managing director and head of Alternative Investing here at TD Asset Management. Welcome, Jeff.
JEFF TRIPP: Ingrid, nice to see you. Happy to be here.
INGRID MACINTOSH: It's going to be a great conversation for our listeners. So great to have you here. First time guest. So tell us a little bit about yourself, your background, history at TDAM.
JEFF TRIPP: Yeah. Yeah. So I came to TDAM, TD Bank, by way of the Greystone acquisition. So that's - we're coming up on about five years. So time has certainly flown by. I'm commercial real estate by trade and background. So a little over 23 years in the industry, I worked for a series of different asset managers over the years, joined Greystone and I’m coming up on my ten year anniversary of Greystone/TDAM, had a great run with the team and the group and certainly very, very proud to be part of TDAM and bring the old strategies to our clients and customers.
INGRID MACINTOSH: So for the uninitiated, I want to talk about what is alternative investing and specifically at TDAM because I think people have heard of alternative assets, they think of hedge funds, they think of high risk they think of... Can you talk about alternative investing and specifically the types of strategies we offer here at TD Asset Management?
JEFF TRIPP: Yeah, I think I think you said it there: Alternatives can mean a lot of different things to different people. And the terminology that we use continues to evolve. If I reflect back to 30 plus years ago in in the Greystone world, you know, there was a recognition that real assets in the case of where we started: it was commercial real estate.
There was a recognition that that could be a key element of investment portfolio. And, you know, that's really evolved over the years to become much more broad. But if you simplify things, what are real assets or alternatives? And you can use those terms somewhat interchangeably. It's an income stream from a real asset. It is truly a real asset.
You can touch it and feel it. So think of - commercial buildings, office buildings, shopping centers. In the infrastructure world: ports, highways, airports, renewable energy sources like wind turbines and solar farms. So from a very simplistic perspective, real assets are real assets that you can see and touch and feel. And they're part of our daily lives.
So it's where we live, it's where we work, it's where we shop, It's where we play.
INGRID MACINTOSH: It's really the world beyond stocks and bonds. And I think about hedge funds, they're kind of a twist on stocks and bonds. That's not what we're talking about here. We're talking about real assets. And for the longest time, only institutional investors could get access to them. Right. Because you have to, you know, have so many professionals investing them in creating the assets.
You talk a little bit about the evolution of investing in real assets.
JEFF TRIPP: Going back those decades ago. It really was a position for institutional investors. It's important to point out the distinction between private investments versus accessing alternatives through public markets like REITs, As an example, real estate investment trusts. Individuals have been able to access those types of strategies through their broker over the years, and that's not new. I think what we can bring within TDAM is a suite of solutions for private alternatives that can be accessed by individual investors through, you know, through various channels.
So it's really evolved from what was pretty exclusively available to institutions to now be accessed by individuals. And the feature of that is it's really a diversifier for people away from just the 60/40 split of equities and bonds. So adding these types of investments, you know, there's low correlation with these public instruments and it brings different attributes from a risk adjusted return perspective to portfolios.
INGRID MACINTOSH: And then in everyday language, because they are less accessible, they offer higher returns, diversification, benefits, higher yields, etc.. Right. So from a portfolio perspective, it's a benefit.
JEFF TRIPP: Yeah, absolutely. What real assets provide are an income stream. So when you think about the search for income in an environment like this where there's volatility, real assets can bring a stabilizing influence to portfolios.
INGRID MACINTOSH: And that's really at the heart I think of most investors ultimate end game, right? They're investing what they're earning today because they're trying to create that income longer in life. And that's the type of attributes pension funds look for. They look for that longevity, making sure that those assets are going to work for them for a long time.
So it really is a tremendous benefit to investors across the board. Can you do a little bit of a deeper dive about the team talk about how we approach alternatives because as I said, there's been lots of news of late of some companies in this field and questions of quality. Can you talk about our approach and a little bit about the team.
INGRID MACINTOSH: Yeah.
JEFF TRIPP: So we're about 80 people strong now and we've got on the ground presence in a number of cities across Canada. So we've got folks in Winnipeg. That's where our mortgage team is based in Toronto, of course, Vancouver and Regina, a big presence there from the legacy Greystone. We've got a couple of people on the ground in London, UK, and we'll continue to grow that presence there over time.
JEFF TRIPP: We're an integrated team, so when I say integrated - people are specialized in their area of expertise and responsibility, but we function as one team. And what that means is: there's a sharing of ideas. There's knowledge that flows across the team. We've got relationships that we've developed in one part of the business that we've been able to translate to other parts of the business.
So an example would be a group that came in as a borrower in our commercial mortgage business, we've been able to do other types of transactions and deals with them in our infrastructure business or our real estate business. So that integration, I think, is really paid huge dividends. The strategies within our alts platform just, you know, just to sort of clarify for our listeners, we've got private debt, which has been part of the TDAM world for a number of years pre-Greystone when Greystone was acquired by the bank, we brought the global infrastructure, we've got global real estate, Canadian real estate and commercial mortgages.
So the leadership of those teams comprise our investment committee. We've got seasoned industry veterans in each of those areas. So Tom Harder leads our commercial mortgage business out of Winnipeg. Jeff Mouland leads global infrastructure. So Jeff's an industry that in the in the infrastructure business, Colin Lynch, who a lot of our listeners will have encountered over the years, he leads our global real estate so that international real estate and Canada, the private credit team is led by Bruce MacKinnon and Louis Belanger.
So - a diverse but very experienced strong group of leaders of those teams.
INGRID MACINTOSH: And you talk about tenure in the space. So TD Asset management, we have close to $40 billion and I think that scale is really, really important because not just any investment team can go out and access these investments, right? It takes relationships, etc.. Can you talk a little bit about maybe even some of the types of investments you've been making lately?
I know you were on a recent trip with our CIO, Dave Sykes, also a little bit about that.
JEFF TRIPP: Yeah. Well, and you mentioned you mentioned quality too, and some of the things that you're seeing in the media around maybe stress in private credit or commercial mortgages, you know, those are very different strategies than what we run here with in TDAM. We think about high quality diversified portfolios. These are core, core plus strategies. And what I mean by that is we have high quality assets within these portfolios.
So, you know, example would be with an ownership in the Royal York Hotel as an example that's included in our Canadian real estate strategy. You talked about a trip abroad to see some of our infrastructure assets. So not too long ago we acquired an interest in a port that's in in the Netherlands between Rotterdam and Antwerp.
INGRID MACINTOSH: I think I need to go do a due diligence on that property.
JEFF TRIPP: Yeah, I would encourage you to do that. It's very, very interesting. So, Dave, we are fortunate enough for David to join us and he carved out a bit of time to travel with us to the Netherlands and Sweden to see some of these assets and the port in particular is a great encapsulation of real assets in that it's when you say infrastructure, it is transportation infrastructure, it's shipping of goods and it's diversified.
That business itself is diversified in that, you know, you've got things like pulp and paper going through there and its distributed throughout the Netherlands and in Europe. So, you know, that was an interesting trip. We visited a wind farm that we hold as part of our infrastructure strategy. So we've got plus or minus 100 wind turbines in Sweden.
And we got David to go up to the top of one of these turbines. So we've got pictures to prove it.
INGRID MACINTOSH: And well, you need to see me. That's where my mother was born and raised in Sweden. So I think that's another reason I need to go and do a trip there. I know that a lot of people, you know, when you talk about commercial mortgages, what comes to mind is the pandemic and, you know, the unthinkable that we always thought about, you know, office space, etc., that that would never change.
You've had a front row seat to the landscape for an office change. What's your outlook there or how do we think about that?
JEFF TRIPP: Yeah - I don't think the story's not fully written. I think if we if we look at “office”, you know, and it's globally, there still is uncertainty and it's a function of the COVID hangover, if you will, and return to office and what the future of work looks like. You know, different markets are responding differently. So Asia, as an example, you know, they’re much closer to a pre-COVID type of office presence.
Europe, US, Canada is still evolving and we're and we're in this this hybrid work environment. It's an evolution. I think that it is still to be played out I think coming out of COVID, a lot of office users took the opportunity to really evaluate what types of uses needed to be in an office environment and what could be done remotely or what needed to be hybrid.
So there was an opportunity that was taken to maybe consolidate some space or accelerate going remote for some workers. So that has caused a bit of an uptick in vacancy.
INGRID MACINTOSH: That's a good view of sort of what we're seeing globally. When we think about Canada - I think about downtown Toronto, the office core. How do you see that playing out going forward?
JEFF TRIPP: I think there's a distinction to be made in terms of the quality of assets. So our investment thesis when we look at office is Central business district. So downtown was well-located, a dense areas on transit, high quality, sustainable type of asset. So, you know, when we say sustainable, we think about, you know, not just energy efficiency, but is it a nice place to work?
Right now we're in an environment where you really need to be thinking about how you attract and retain talent. So, you know, having an office, building - an environment where people want to come to work is certainly important. It needs to be as accessible as you can make it. So on transit, particularly, you know, being in Toronto here, we all understand what traffic looks like and what the commute looks like.
So making it easier for your people to come to work is important. You know, when we look at how “office” is going to evolve, we've got very high conviction around those high quality assets because we do think the B and C class office we're going to see things will be a little more challenged over time.
INGRID MACINTOSH: That really speaks to the quality bias. Again, you know, in a booming real estate market, all ships are lifted. But whereas and, you know, as we see the world changing a little bit here, that bias towards quality and the types of things that drive the most desirable office space are the ones that sit in the portfolio. Talk a little bit about private debt and the kind of incremental yield that investors can receive through investments in private debt.
You know, we think traditionally in the public debt markets of government bonds, provincial bonds, corporate bonds, but incrementally private debt, again, there's an accessibility feature that we can bring to the table. But what's the incremental yield that investors can often look at?
JEFF TRIPP: We call it a uniqueness premium. So these are all custom.
INGRID MACINTOSH: Loans.
JEFF TRIPP: Loans, really? Yeah. So think of a credit tenant lease. You've got a building where, pick a name, Amazon, has a long term lease, it could be 20 years and you would have an owner that owns that building. Amazon wouldn't typically own it. They would be a tenant and an occupier. And the owner of the asset wants to finance it.
So our team is able to underwrite that Amazon lease and, you know, provide debt to the owner of the asset and the premium enhancement or the uniqueness premium. The yield enhancement really stems from the ability to get your head around the risk return profile of an asset like that with a tenant like Amazon.
INGRID MACINTOSH: And then the benefit to the investor from that work is a higher return on their debt investment that they might get from a public market investment. I think that's really at the core of what we think about with alternatives. It's assessing different markets that are harder for individuals to assess, having qualified teams to be able to do the work, the analysis and have access to those investments and then to be able to bring them together in a way for investors by embedding them in managed solutions alongside public securities, equities, fixed income derivatives, etc., and that really is the magic of bringing it all together.
JEFF TRIPP: Yeah, I think that's right. And you can think of real assets as each of them is like a little business. So, you've got a balance sheet, you've got a profit and loss, income statement, you've got a management team, you've got strategy and business plan, you have capital investments.
So it's a very management intensive space. It's a very people intensive space. You know, there's relationships that are so important. So it's all very sort of bespoke and custom. Each of those assets. So the ability to, to access that, you know, requires skill. It requires a team, it requires an office presence sort of, you know, quote unquote, boots on the ground is.
INGRID MACINTOSH: Really.
JEFF TRIPP: Important. That's right. You know, that's terrific.
INGRID MACINTOSH: And we can bring all that to not only our institutional clients, but also to our individual investors through the managed solutions. Jeff, I always love to close things off the lightning round and I'm going to throw a few words or terms at you, and I want you to give me the first thing that comes to your mind. Are You ready?
JEFF TRIPP: I'm ready.
INGRID MACINTOSH: Okay, Inflation.
JEFF TRIPP: Inflation. So a couple elements as it relates to real assets. Real assets do provide a partial inflation hedge. So what I mean by that is, think of rents from a real estate asset. You are able to pass on escalating rents to occupiers over time so you can build in annual increases in a rental stream.
So that enables you to track inflation over time.
INGRID MACINTOSH: Time and give the end investor an inflation hedge as well if that's really.
JEFF TRIPP: Really exactly or you know energy generation or power generation can sell that into the spot market and that enables you to pass on higher costs as they as they progress. The other side of that, though, is, you know, central banks have been hiking interest rates to keep inflation under control or to get it back under control.
It results in a bit of a headwind to real assets in that it impacts your valuations over time. So it's a bit of a push pull.
INGRID MACINTOSH: Pretty robust answer to a lighting round question
JEFF TRIPP: You like that?
INGRID MACINTOSH: Good it's pretty good. You're going to think I prepped you with these, but I didn't know. Jeff, thanks so much for joining me. Thanks for giving our listeners a sort of a touch into the world of all to love to have you back and go a little bit deeper on some of these in the future. For listeners, you can find a recently published Wealth Asset allocation Committee Perspectives on TD Asset Management Site.
INGRID MACINTOSH: Along with more of our thought leadership, you can get all of our expertise updates from TDA Asset Management by following us on Twitter @tdam_canada and on LinkedIn at TD Asset Management. Jeff, thanks so much. Thanks to our listeners and stay safe out there.
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