Exploring Venture Debt on The Unlimited Podcast by Ginsler Wealth

On Episode 5 of The Unlimited Podcast, Brian Ginsler speaks with Alkarim Jivraj, CEO of Espresso Capital, a venture debt manager based in Toronto.

While most have heard of, and are familiar with, venture capital, in this podcast we dive into the venture debt asset class.

In this episode, we learn how Espresso got its name; “Venture Debt 101”; how venture companies service their venture debt; the benefits of venture debt for lenders; the risks of venture debt; loss metrics; and how Espresso sources deals.

This episode can be found here or find us in your favourite podcasting app, including Apple Podcasts, Spotify, Google Podcasts and Amazon Music.

If you like what you hear, please don’t hesitate to rate us kindly. And if there are particular topics you’d like covered, please let us know.

Ginsler Wealth First Quarter 2022 Client Letter

(An audio version of this letter can now be found as Episode 4 of The Unlimited Podcast by Ginsler Wealth. Use the link provided or find us on your favourite podcast app.)

 

To Ginsler Wealth’s Clients:

Well…I was right.

In my last quarterly letter, I said “uncertainty is the only thing I know with certainty”.

In the three months since I released that letter, in the words of Chamath Palihapitiya from the All-In Podcast on Friday, April 1st…

“We’ve had massive exposition of inflation; we’ve had massive disruptions to the supply chain; we’ve had the beginning of a war whose end is somewhat indeterminate today, that’s causing a bunch of spikes in a bunch of really critical commodities the entire world needs; we’ve had a Federal Reserve that went from hiking 50 or 75 basis points to hiking 200-250 basis points by the estimated average; and so all of these things have happened yet the market is basically at an all time high plus or minus 5%. That really doesn’t hang together at some really basic logical level.”[i]

And Balaji Srinivasan, speaking on The Knowledge Project with Shane Parrish on April 5th, reminded listeners of past events:

“Every single thing over the last twenty-something years, …, 9/11 was a surprise; WMDs in Iraq, that was a surprise; the collapse of Bear Stearns and then Lehman Brothers, that was a surprise; the Snowdon revelations were a surprise; …, Trump was a surprise; Covid was a surprise; …, everything’s a surprise…”[ii]

And of course, in February 2022, Russia’s terrible invasion of Ukraine was a surprise.

All the above is simply to reinforce that trying to predict and forecast the future is very hard, or in my opinion, impossible. I therefore remind you that at Ginsler Wealth, we organize your financial affairs and investment portfolios with the goal of being prudent and resilient, while striving for reasonable returns. I will note that Chamath’s comment above also reinforces a comment from a message we sent out on February 24, the morning after Russia invaded Ukraine…equity markets are resilient, even in the face of challenges, and as it relates to your investments, we encourage you to keep calm and carry on…with your long-term investment plan.


RUSSIAN OIL AND ESG INVESTING

If there is one thing the war in Ukraine has brought to the forefront, it is the world’s (and in particular, Europe’s) heavy reliance on Russian oil. As an oil-rich country and producer, Canada’s energy-heavy stock market has actually performed very well relative to its global peers. That being said, in addition to sourcing oil supplies from countries other than Russia, we believe this crisis will be yet another catalyst for countries to seek alternative clean and renewable sources of energy.

Coincidentally, over the past quarter, we welcomed a new client family that pushed us (actually…mandated us) to build an ESG (Environmental, Social & Governance) focused portfolio for them. Many of the core strategies and managers we utilize were already signatories to the UNPRI (United Nations Principles of Responsible Investing) and employ ESG factors in their investment process. However, we now have a more robust and comprehensive portfolio of strategies we can employ for clients that meet rigorous ESG criteria. If you would like to learn more about ESG investing with Ginsler Wealth, please let us know.


NEW MORTGAGE STRATEGY

In addition to a select few new strategies employed through our ESG project detailed above, after five months of due diligence, we were pleased to begin allocating client assets (where appropriate) to a new Canadian private mortgages investment. Through a related entity, this manager originates over $1 billion of mortgage loans each year and through its investment vehicle, will lend directly to a small subset of those borrowers. The mortgage portfolio is diversified by asset class and geography within Canada and pays a target 8% annualized distribution (paid monthly), with the opportunity for a “top up” at the end of the year (in 2021 the strategy returned 9.3% in the lower fee class Ginsler Wealth clients get access to). The manager provides Ginsler Wealth with complete transparency into every single loan in the portfolio and access at all times to a full electronic data-room.

For investors holding this investment within a corporate structure, the interest income may be treated as active business income (talk to your own accountants about this!) and therefore subject to the lower active business corporate tax rates versus passive income tax rates.

Perhaps most unique, the manager’s main principals have currently invested ~$22 million in a class of units in first loss position (and contractually must have at least $15 million in first loss position). Notwithstanding the fact that there have been no/$0 losses to date, this means that the mortgage pool would have to suffer $22 million of losses before its investors would face any loss of principal. This is a rare find.

We have found this strategy to be a good addition for clients seeking high income from their portfolio. As always, we are happy to discuss this strategy with you should you wish.

 

THE UNLIMITED PODCAST BY GINSLER WEALTH

One of my early roles in my wealth management career was overseeing the “manager of managers” program at one of Canada’s leading multi-family offices. In order to share manager updates with clients, we would record a phone call with each manager, burn them all onto CDs, and put the CDs in the mail to clients who could listen to the manager interviews at their leisure.

As an alternative to sending you all physical CDs (😊), we decided instead to launch a podcast. The Unlimited Podcast, as the name implies, will not be limited only to interviews with investment managers. While investing and financial concepts will certainly be a big component of the podcast, the goal is to bring you insight and expertise on a variety of topics from experts that you, and other listeners, may find interesting.

One of our clients told me that my last quarterly letter was too long! So, for those who prefer to listen to my (long-winded) letters as opposed to reading them, the podcast will also include audio versions of these letters.

The first live interview podcast was released last week and contains my interview with David Vankka, President and Partner of ICM Asset Management, and Portfolio Manager of the ICM Crescendo Music Royalties Fund. We review the music royalties asset class, dive into a Taylor Swift case study, and discuss why music royalties could be a good addition to traditional stock and bond portfolios.

More details of the podcast can be found here or find us in your favourite podcasting app, including Apple Podcasts, Spotify, Google Podcasts and Amazon Music.

 

“Everybody has a plan until they get punched in the mouth”
                                                                                                     – Mike Tyson

Mike Tyson once famously said the quote above prior to a fight with Evander Holyfield (Tyson lost by the way). In organizing your financial and investment affairs, we do so knowing that we will be “punched in the mouth”, we just don’t know when or by who. Or in other words, we know surprises are coming. And we believe we are ready for them.

Thank you for your trust, support, and confidence. We are available 24/7 should you need us.

Sincerely,

Brian singnature

Brian Ginsler
President & CEO

 

 

 

GW Welcomes Safal Bhattarai to the Team

GW was pleased to welcome Safal Bhattarai, CPA, CGA, FCCA (UK), CFA, to our team this past quarter. As you can see, Safal has earned a variety of professional accounting, investment, and finance designations. Our regular business cards may not be big enough for all his accreditations! Safal joins us from another wealth management firm and will work closely with Brian on financial and portfolio matters, along with playing a major role in our manager research, due diligence, selection, and monitoring process. We look forward to having you meet Safal in due course.

 

 

[i] All-In Podcast. April 1, 2022. Available here: https://podcasts.google.com/feed/aHR0cHM6Ly9hbGxpbmNoYW1hdGhqYXNvbi5saWJzeW4uY29tL3Jzcw/episode/ZTczOTUyMGQtN2U2Yi00ZjgxLTk2NGYtYTU4ZWNiYjFkNjA3?hl=en-CA&ved=2ahUKEwjBldTMv__2AhUMVc0KHVrxAh0QjrkEegQIAxAF&ep=6

[ii] The Knowledge Project with Shane Parrish. April 5, 2022. Available here: https://fs.blog/knowledge-project-podcast/balaji-srinivasan-2/

Music Royalties with David Vankka on The Unlimited Podcast

With the launch of the Unlimited Podcast we are excited to announce our first guest, David Vankka, President, Partner & CFO of ICM Asset Management, and Portfolio Manager of the ICM Crescendo Music Royalties Fund.

Brian and David discuss the relatively unknown world of music royalties: what are they, how can you invest in them, and what can they add to a portfolio as a truly alternative asset class?

Mr. Vankka joined ICM as a partner in 2017 and leads ICM’s diversified private equity platform. Mr. Vankka has 30 years of experience in investment banking, trading, and capital markets. He has been a Managing Director at several investment banks with extensive advisory experience in domestic and cross-border mergers & acquisitions, equity and debt origination, due diligence, structured product management, strategic planning, risk management, and proprietary trading. Mr. Vankka was a founder of global energy investment bank Tristone Capital which was ultimately sold to Macquarie Group and before that co-head and principal at Peters & Co. Limited. Mr. Vankka also was Vice President, Risk Management at Gluskin Sheff + Associates.

Mr. Vankka holds Chartered Financial Analyst, Chartered Professional Accountant, and Chartered Accountant designations. He is registered as Portfolio Manager with the Alberta Securities Commissions and holds a Bachelor of Commerce with distinction from the University of Calgary.

You can listen to this episode here or find us in your favourite podcasting app, including Apple Podcasts, Spotify, Google Podcasts and Amazon Music.

If you like what you hear, please don’t hesitate to rate us kindly. And if there are particular topics you’d like covered, please let us know.

Introducing The Unlimited Podcast by Ginsler Wealth

Ginsler Wealth is pleased to announce the launch of The Unlimited Podcast, a new podcast featuring interviews with investment managers we may work with, but also a variety of investing, financial and other experts our listeners may find interesting.

In addition to interviews, the podcast will also feature audio versions of our quarterly letters and other key publications.

The first live interview – just released – features David Vankka, President and Partner of ICM Asset Management, and Portfolio Manager of the ICM Crescendo Music Royalties Fund. We discuss the music royalties asset class, and why it could be a good addition to traditional stock and bond portfolios.

More details of the podcast can be found here or find us in your favourite podcasting app, including Apple Podcasts, Spotify, Google Podcasts and Amazon Music.

If you like what you hear, please don’t hesitate to rate us kindly. And if there are particular topics you’d like covered, please let us know.

Ginsler Wealth Fourth Quarter 2021 Client Letter

(An audio version of this letter can now be found as Episode 2 of The Unlimited Podcast by Ginsler Wealth. Use the link provided or find us on your favourite podcast app.)

 

To Ginsler Wealth’s Clients:

The new omicron variant was certainly an unwelcome and perhaps unexpected holiday development. I do hope the holiday season found you and your loved ones happy and healthy.

“Uncertainty is the only thing I know with certainty.”

With the arrival of the end of the calendar year comes the requisite financial and market forecasts for the new year. On December 30, 2021, the Globe and Mail ran two articles, one directly on top of the other:

The first, written by my dear friend David Rosenberg entitled, Here’s what investors should expect in 2022, details the potential for a 30 percent equity market correction. The second, written by BMO Capital Markets’ Chief Investment Strategist was titled Why the bull market will be alive and well in 2022. Its content is self-evident by its title.[i]

Which of the above will prove prescient, I don’t know. Nor can I identify the best forecasts from the many other experts who have weighed in. So instead of trying to be right, at Ginsler Wealth we aim to be prudent.

Because the only thing I know with certainty is that there are uncertain roads ahead, we build your portfolios by incorporating a variety of investment strategies with the collective goals of both reasonable performance and commensurately reasonable downside protection. To be clear, the other thing of which we are fairly certain is that over the longer term, equities will remain the best performing asset class and will always be an important and sizeable component of most clients’ investment portfolios. However, the cost of achieving higher returns through equities is always their accompanying volatility.

So how do we strive for equity-like returns[ii] while aiming to protect capital? Among others, we do so in a number of ways:

  1. Investing in exchange traded funds, for extremely low cost, broad market exposure (no capital protection component here),
  2. Selecting equity managers that use a variety of strategies to hedge market exposure and reduce volatility,
  3. Utilizing equity managers with strategies that focus on dividends and income,
  4. Allocating capital to hedge funds that aim to take a “market neutral” approach to investing, and
  5. Finding managers with unique and often non- or less-correlated investment strategies.

As an example of the last approach, we have recently begun allocating capital to a specialized SPAC (“Special Purpose Acquisition Corporations”) arbitrage strategy. We believe this strategy is unique in that it has a track record of delivering equity-like returns with principal protection qualities, low downside volatility and low correlation to equity and fixed income markets. In fact, to date, 99% of the fund’s closed positions have resulted in positive realized returns. We believe this strategy’s long-term target return is between 8-10%. As an added benefit, due to our scale, all Ginsler Wealth clients—regardless of the size of their allocation—are able to invest in the fund’s lowest fee class. In a recent Globe and Mail piece entitled How SPACs can tone down your risk, Larry MacDonald[iii] writes on this type of strategy: “…buying and selling pre-acquisition SPACs can be a virtually riskless way to earn positive returns in bear and bull markets.” Our job, as always, is to find the managers with the experience to execute well.

How to Build a Goldilocks Portfolio

This past quarter, a new client asked us to build a portfolio for his family with the following characteristics:

  • Limited direct equity exposure
  • High single digit target returns
  • Tax efficient
  • Downside protection

While we thought of calling this portfolio the “Unicorn” portfolio, given the difficulty in finding such a magical collection of investments, we ultimately named this portfolio the “Goldilocks” portfolio by mixing a few asset classes (i.e., not too much, not too little, just right) with the goal of achieving the client’s objectives. The resulting portfolio blends an income-oriented equity strategy (with hedging capabilities), the SPAC strategy mentioned above, a venture debt strategy (closed to most outside investors), a market neutral hedge fund (closed to most outside investors) and a long/short public real estate focused investment strategy. We utilized the family’s registered (non-taxable) accounts to hold the income-producing securities, while keeping capital gains-oriented holdings in taxable accounts. Through a combination of asset allocation, security selection, and asset “location” decisions, we believe we have built a portfolio that meets the client’s needs[iv]. We will be reaching out to all clients as part of our normal portfolio review process and will be happy to discuss this Goldilocks portfolio in more detail.

Incidentally, this past quarter, we reviewed upwards of 40 or so additional investment strategies and ultimately made allocations to two new strategies (both of which we have known and followed for many years). The bar remains very high.

Digital Asset Activity

We remind you that digital asset exposure generally only comprises a very small, single-digit proportion of our clients’ (where applicable) investment portfolios. However, we continue to spend a disproportionate amount of our time and energy on this space. We remain bullish on the long-term outlook for digital assets broadly and the underlying technology more specifically. This was a particularly active quarter for Ginsler Wealth in the following ways:

  1. We worked with Digital Asset Council of Financial Professionals (DACFP) to bring its certificate program to Canadian advisors at a special, Ginsler Wealth discounted price. We believe it is incumbent on financial advisors to truly understand this space (this goes for the media as well!) prior to making client recommendations. I was also featured on DACFP TV, where I discussed Ginsler Wealth’s approach to digital asset investing.

DACFP GW discount code

  1. We spent an extraordinary amount of time performing due diligence on a Singapore-based digital asset fund manager. Due to the 12-hour time difference, this included many late-night Zooms with the company. When we say we “search the world” for investment strategies for our clients, we really mean it! The core strategy that we have begun allocating to returned 295% for the year through November 2021. While we do not expect this level of return to be repeated, we are confident that we have found a group that are truly experts in this space.
  1. Finally, we were pleased to get clients access to participate in a highly oversubscribed private investment in Sygnum Bank AG, the world’s first fully-regulated digital asset bank, alongside other major international investors. You can read the announcement and company press release.

Digital asset investing is not appropriate for all clients, but we are always available to discuss the asset class with you.

———

As we begin 2022, I am hopeful that the end of the COVID pandemic is in sight, as we learn to live with whatever variant or variation of the virus remains. From a financial perspective, I am hopeful that world economies will remain resilient. Most of all, I am hoping that you and your families are, and will remain, happy and healthy.

But, in these uncertain times, hope is not a strategy. We will remain unrelentingly focused on managing your wealth and investments carefully and prudently. Because, unfortunately…we can’t forecast the future.

Thank you for your trust, support, and confidence. We are available 24/7 should you need us.

Sincerely,

Brian singnature

Brian Ginsler
President & CEO

 

 

Alphabet Soup and Tax Savings

RRSPs (Registered Retirement Savings Plans)

Reminder that March 1, 2022 is the deadline to contribute to your 2021 (last year’s) RRSP. The maximum RRSP contribution limit for 2021 is $27,830. However, check your CRA account to confirm your personal contribution room. If you have good visibility into your 2022 earnings, we also encourage you to make your 2022 (this year’s) contribution now to benefit from tax-deferred investing as early as possible. The maximum RRSP contribution for 2022 is $29,210. We can help you determine your best course of action in this regard.

TFSAs (Tax Free Savings Accounts)

Similarly, you now have another $6,000 of TFSA contribution room to utilise. The TFSA is a wonderful way to invest tax-free, forever. For those that have not yet established a TFSA, you may have up to $81,500 of lifetime contribution room. We recommend all our clients make use of this tax saving opportunity.

RESPs (Registered Education Savings Plans)

Finally, for those saving for their children’s education via a RESP, for those who are eligible, you can now earn 2022 CESGs (Canada Education Savings Grants – i.e., “free money from the government”) on your contributions. At Ginsler Wealth, we love helping our clients get free money.

 

 

 

 

[i] Both articles are only available to Globe and Mail subscribers. Apologies if you are unable to access them.

[ii] While equity markets of late have been returning high double-digit returns, please recall that the historical, long-term compound annualized total return of the S&P 500 has been approximately 10% since 1928. Source: https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html.

[iii] This article is also only available to Globe and Mail subscribers. The article references a SPAC strategy offered by a Calgary-based firm. Ginsler Wealth is not familiar with such strategy nor its principals.

[iv] Of course, no investment results are guaranteed and there is no guarantee that this portfolio of strategies will meet the targets and objectives detailed herein.

Brian Ginsler’s First Quarterly Letter to Ginsler Wealth Clients

(An audio version of this letter can now be found as Episode 1 of The Unlimited Podcast by Ginsler Wealth. Use the link provided or find us on your favourite podcast app.)

 

To Ginsler Wealth’s Founding Clients:

You won’t see the same salutation on a Ginsler Wealth letter ever again. Because as the third quarter of 2021 has ended, so too has the first full quarter of operations of Ginsler Wealth. So I will start this update by thanking you, Ginsler Wealth’s Founding Clients, for your trust, support, and confidence.

Ginsler Wealth (or “G|W”) was born out of my desire to build a completely independent, unconstrained, and unbiased wealth management firm for successful families. I am not an egotistical person; I didn’t put my name on the door so that I could see my name in lights. I put my name on the door because it ensures that I never forget that I am personally accountable to you. Over time the firm will grow well beyond myself and our current small team (more on that later), but I wanted my clients to know that I am ultimately responsible for their care. I also wanted our firm to have a personality that can be traced back to mine: smart, serious, and unwaveringly ethical…but also humorous, real, and humble.

The latter trait drives our approach to managing your wealth and investments. We know where we excel: managing relationships, pulling the pieces together, identifying opportunities for savings or growth, and constructing and managing a differentiated, diversified investment portfolio. We are also very clear in knowing that we cannot excel at everything. We cannot be the best tax planner, estate planner, insurance advisor or stock picker – because we don’t practice those disciplines 24/7 and haven’t done so for 20+ years. But boy do we know how to find those experts and engage them for the benefit of our clients.

Our humility allows us to put our egos aside and find the best[i] professionals in their fields to help us achieve the best[ii] results for you.

Our humility also allows us to say that we don’t know what the markets are going to do this week, month, quarter, or year. But we know how to construct a diversified investment portfolio – comprised of more than just stocks and bonds – with the goal of weathering the storms that will most certainly come, and delivering returns that are focused on meeting your specific goals and objectives, not on simply beating “the markets”.

On that note, I don’t plan on providing generic updates on the stock and other markets in these letters. There are two reasons for this:

  1. This is done ad nauseum by other managers, advisors, and the financial media and is often a distraction from the long-term investment plan we have in place; and
  2. Ginsler Wealth client portfolios are not homogeneous and are often comprised of a variety of asset classes and strategies. As such, summarizing all the goings-on across the variety of strategies in G|W client portfolios would necessitate monopolizing far too much of your collective valuable time.

I will, however, share with you details of investment strategies that we are assessing, reviewing and/or allocating to. So far this year, G|W has reviewed no less than 50 investment strategies for potential inclusion in client portfolios. These have included traditional stock and bond strategies, along with a variety of different/alternative strategies across asset classes such as real estate, private equity, venture capital, venture debt, private debt, and music royalties, to name but a few. Recall that we are unconstrained in our ability to look at anything…not just what is on your bank’s “approved list”.

We are currently receiving significant demand for an “income-oriented” portfolio, especially in this current period of ultralow interest rates. We have assembled a collection of investment strategies that we believe should pay an approximate 5.5% ongoing distribution yield with a target total annual return of 10%[iii]. Reach out if you want to learn more.

We have also reviewed no less than twenty private “deals” or “opportunities” in areas such as real estate, student housing, cryptocurrency businesses, legal technology, food delivery, healthcare, fintech, cannabis, hospitality, and Israeli cyber-security. That last one was, so far, the only investment funded by Ginsler Wealth clients following our significant due diligence. The bar is high. If you have a particular interest in private investments of a certain type, I encourage you to let us know…we see a lot.

In future letters, I also plan on sharing with you examples of some of the non-investment work we do for clients. Every family is different, and every family requires help from G|W in a different way. This past quarter, we have run expense budgets for families with significant wealth, because they are smart enough to want to keep close track of their spending; we have helped families lay the foundation of financial protection through the simple use of life insurance; and through our “lifestyle concierge” service, with the help of our Advisory Board, we have helped clients navigate medical issues for family members to successful resolutions.

But this first letter is meant to just touch on who we are and what we (can) do for you. We’ll dive deeper in subsequent updates. In the meantime, I encourage you to connect with G|W on LinkedIn, Twitter, Instagram, and Facebook to stay updated on day-to-day goings on.

I’ll conclude this first letter where I began…I take the responsibility of caring for your wealth seriously and I am unrelentingly dedicated to your success. That is my promise to you. My name is on the door.

Once again, thank you for your trust, support, and confidence. We are available 24/7 should you need us.

Sincerely,

Brian singnature

Brian Ginsler
President & CEO

 

Business Updates

During the quarter, we moved into our new offices near Avenue and Davenport in Toronto. Those who know me will not be surprised to find a Lego Seinfeld set in my office. For those comfortable meeting indoors, I encourage and welcome you to come by for a visit and experience my barista skills firsthand. All Ginsler Wealth team members are fully vaccinated.

G|W was also pleased to welcome Kathryn Donville to the team as a Client Service Associate. Kathryn is a recent Ivey MBA graduate. Kathryn has investment management blood in her veins having previously worked for a number of years at Donville Kent Asset Management, a successful investment firm founded by her father Jason over 13 years ago. Kathryn will be working closely with our clients to ensure they receive the highest level of personal service.

 

 

[i] Full disclosure – the Ontario Securities Commission would not be happy with Ginsler Wealth using superlatives like “the best” since that is theoretically subjective. So let’s just say “very good…”.

[ii] Same as above.

[iii] Of course, no investment results are guaranteed and there is no guarantee that this portfolio of strategies will meet the targets and objectives detailed herein.